Posted on 10/03/2012 5:52:32 PM PDT by blam
A Rare Occurrence In The Saudi Currency Market Tells You That Trouble Is Brewing In The Middle East
Matthew Boesler
October 3,2012
An important shift is developing in Saudi Arabian currency derivatives markets as Iran becomes engulfed in populist protests amid hyperinflationary pressures and armed conflict breaks out between Turkey and Syria, heightening concerns about tensions in the Middle East.
The 12-month forward rate on the Saudi Arabian riyal – or the difference between how many riyals traders think a dollar will be able to buy a year from now versus how many riyals a dollar can buy today – has been hovering just above zero for the past two weeks.
In other words, as pointed out by BNP's Bartosz Pawlowski, traders are expecting the riyal to depreciate against the dollar.
And that is something that almost never happens – unless markets are getting really worried about Saudi Arabia, one of the most stable countries in the region.
Here is a chart that shows the latest move above the zero level (that tiny blip at the far right) and also puts into perspective how rare of an occurrence it is for the rate to do so:
The reason the SAR 12m forward rate is usually way below zero, as most of the chart shows, is because Saudi Arabia runs a massive trade surplus due to its central role as oil exporter in the global economy. In other words, one would usually always expect the riyal to appreciate against the dollar.
But Saudi Arabia's currency is pegged to that of the U.S. – at a rate of 3.75 riyals per dollar.
Because the exchange rate is fixed, the value of the riyal isn't such a great way to read the market's views on Saudi Arabia
(snip)
(Excerpt) Read more at businessinsider.com ...
If am understanding correctly, all have read, the saudis are supporting the rebels. russia supports assad. iran supports assad. Turkey is going to shoot at the rebels or assad? Thinking assad did shoot down the Turkish plane, and thinking the rebel fired the mortars into Turkey.
Are Saudi riyals and Iranian rials, the same thing?
No, just as US and Canadian dollars are not the same thing.
Thanks blam.
Makes sense; thanks.
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