Major expat currencies in freefall: Rush to remit or wait some more?

Major expat currencies are in a freefall, with the Indian rupee slipping past 67/$ (Rs18.25 vs Dh1) and the Pakistani rupee sinking to 104/$ (PKR28.32 vs Dh1) in the proverbial blink of the eye on Monday, much to the delight of the UAE’s Indian and Pakistani expats.

Other expat currencies, including the Philippine peso (Php12.78 against Dh1), the Bangladeshi taka (BDT21.34 vs Dh1) and the Sri Lankan rupee (LKR36.73 vs Dh1), have all made fresh lows recently.

As global stock and commodities markets stutter and whimper, the US dollar is trumping major emerging market currencies, boosting global remittances in the interim.

“There has been significant spike in remittances during the last few days, especially to the South Asian countries, taking advantage of the depreciating currencies. Remittance to countries like India have experienced about 15 to 20 per cent increase,” Promoth Manghat, CEO, UAE Exchange, told this website.

“There has definitely been an increase in remittances,” agreed Sudhesh Giriyan, COO, Xpress Money.

With most UAE expats getting the most favourable exchange rate in several months if not years at the remittance counter, the million-dollar question for expats is: is this the time to remit or should we hold on if there are any chances of a further decline in our home currencies against the currency of our resident country?

We posed this question to the experts, who said this is something that several high net worth expats have repeatedly asked him over the past two weeks.

“The volatility of global currencies has had a substantial impact on all currencies – especially the depreciation of Chinese Yuan. Though the monetary authorities are taking measures to reduce the impact to this volatility, it’s too early for this depreciating pattern to disappear,” said Manghat.

“Ever since China devalued the yuan in the second week of August, many HNWI expats have asked us if this is the best tome to remit,” added Giriyan.

“Looking at the current exchange rates, we do believe that some of the remittance currencies, especially the Indian rupee and the Philippine peso, are at a very, very good level,” he said.

But, given the global uncertainty that has spooked equity markets, can the currencies fall further against the US dollar/UAE dirham, we asked.

“That’s a very difficult question to answer, as there are several moving parts to the equation, and it is not possible to accurately predict the outcome,” he smiled.

“The global currency fluctuations will have an impact on these currencies [Indian rupee, Philippine peso, Pakistani rupee, Sri Lankan rupee and Bangladeshi taka],” said Manghat.

Nevertheless, when probed further, Giriyan said that the Indian rupee, which fell to a lifetime low of Rs18.55 against the UAE dirham about two years ago, could see that level again this year if the Reserve bank of India (RBI), the country’s central bank, decided to not intervene to prop up the sagging currency.

“As of now, all indications are that the RBI may intervene to stem the short-term volatility,” he said, but agreed that India may be delaying the selling of dollars in the local market to counter the Chinese yuan’s depreciation.

“We have seen predictions of the rupee depreciating further from these levels,” Giriyan conceded.

“Stability in the current volatile nature of global currencies can bring a control in the fluctuation of the others too. Apt measures by the respective central banks to bring in stability will be of help,” Manghat added.

Most emerging market currencies fell subsequently in response to the Chinese yuan’s surprise 4.4 per cent devaluation (over August 11 and 12), and export-oriented countries tend to keep their currencies relatively weaker against a basket of global currencies so as to keep their exports competitively priced.

As the experts stated, the Chinese devaluation is just one part of the equation. The plunging global oil price is another important part of it, highlighting that major global economies are not in a position to guzzle all the cheap oil that’s being produced right now, and oil producers’ budgets are in for some squeeze.

The uncertainty surrounding the US rate hike is another one, with several experts now saying that, given the past couple of weeks’ developments, the US Federal Reserve going ahead with the proposed rate hike in September may prove to be a rather costly mistake.

“Investors are turning away from emerging market assets, rattling global markets,” said Bank of America-Merrill Lynch (BofA-ML) in a new global economic weekly titled ‘CNY crashing a dismal party’.

“Emerging market equities have now dropped by more than 10 per cent in 2015, with battered EM currencies weakening by a similar magnitude,” it noted in yesterday’s report.

Incidentally, the stats weren’t nearly as accurate by the end of day, as the report came before the equities bloodbath that saw the Bombay Stock Exchange Sensex and Nifty slip 6 per cent each, Hong Kong’s Hang Seng index plunge 7.6 per cent and the Shanghai Composite index sinking by 8.5 per cent.

Brent oil prices tumbled another 6 per cent yesterday, ending the day at $42.80/b while WTI went down 5.5 per cent to end the day at $38.24/b – the lowest oil price the world has seen in more than six years.

What does that mean for emerging market currencies in the short-term, is anybody’s guess.

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