Rupee recovers, gold loses shine

Surge in dollar supply compared to demand supports rupee’s recovery

Snapping a six-day losing streak, Pakistan’s currency appreciated by a notable Rs0.95, or 0.59%, to Rs160.08 against the US dollar in the inter-bank market on Tuesday compared to the one-month low hit a day ago.

A surge in supply of foreign currency compared to its demand supported the partial recovery of the rupee.

Besides, gold price dropped Rs2,350, or over 2%, to a four-month low of Rs110,500 per tola (11.66 grams) in line with the correction in global commodity markets after a UK company, along with the University of Oxford, developed an effective Covid-19 vaccine.

“The rupee has appreciated ahead of the Thanksgiving holiday in the US on Thursday (November 26),” Pak-Kuwait Investment Company Head of Research Samiullah Tariq said while talking to The Express Tribune.

He elaborated that the holiday would keep dollar outflow from Pakistan at a low level while the inflow of other foreign currencies like Saudi riyal and UAE dirham would remain normal.

“The US has observed the Thanksgiving holiday in previous years as well but this is the first time when Pakistan has adopted a market-based exchange rate mechanism where the rupee moves both ways in line with demand and supply of the US dollar,” he said.

Earlier, the central bank and the Ministry of Finance used to control the rupee’s movement.

“The rupee may move in a narrow band of Rs158-161 to a dollar till Pakistan and the world overcome the second wave of Covid-19,” he said.

Exchange Companies Association of Pakistan President Malik Bostan said “this is the beauty of the newly implemented market-based exchange rate mechanism that the rupee was moving both ways against the US dollar.”

He said the rupee had lost Rs2.88, or almost 2%, in the past six working days to a one-month low of Rs161.04 on Monday due to panic buying of dollar by importers.

“Now, the spell of panic buying is over and the rupee is expected to return to Rs157-158,” he said.

He elaborated that the spike in Covid-19 cases in Pakistan and across the world had triggered panic amongst traders, who placed import orders sooner rather than later. “Likely restrictions on global trade to curb the pandemic may make imports costlier,” he said.

Earlier, the market expected the rupee to rally to Rs155 a dollar, but panic buying disrupted the uptrend.

Bostan pointed out that Pakistan had resumed manufacturing of textile goods in three shifts a day for exports after quite a long time. Since textile exporters were fully booked for the next three months, high export earnings should keep the country’s foreign currency reserves at higher levels, he said.

According to Bostan, it is a must for Pakistan to devise a strategy to control Covid-19 cases as soon as possible. “Any delay may derail the economy.”

The State Bank of Pakistan reported the other day that its foreign exchange reserves increased to $12.9 billion, their highest level since February 2018. The improvement was partly due to the current account surplus in the first four months (July-October) of current fiscal year.

Gold drops

“Gold lost shine around the globe, including in Pakistan, following the University of Oxford’s announcement of an effective vaccine for Covid-19,” All Sindh Saraf and Jewellers Association (ASSJA) President Haji Haroon Chand said.

This is the third successful vaccine in recent days around the world. The latest one is said to be easy to store and cheaper than the earlier two vaccines.

Chand said the Covid-19 outbreak took gold to an all-time high at Rs132,000 per tola. “Now, the news of introduction of vaccines is taking it (gold) down.”

He said the precious metal may remain around Rs108,000-110,000 per tola in line with the international market that may stay around $1,800 per ounce (31.10 grams).

Published in The Express Tribune, November 25^th, 2020.

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