The Saudi riyal fell sharply against the U.S. dollar in the forwards market on Tuesday because of a surge of demand for dollars in the spot foreign exchange market, where the riyal is pegged to the U.S. currency, traders said.
One-year dollar/Saudi riyal forwards jumped to 90.0 points, their highest level since a peak of 91.50 points hit in March 2011, when the Arab Spring uprisings elsewhere in the Middle East briefly raised concern about political and economic stability in the Gulf.
The forwards closed Monday at 69.0 points and ended last Friday at 36.33 points. They are used by some international investors as a proxy for risk in the Gulf, and to hedge against market movements.
The surge of demand for dollars in the Saudi Arabian foreign exchange market may be linked to the recent plunge of global oil prices as well as a sharp fall of the Saudi stock market over the past two weeks, the traders said.
They said banks were not panicking, but some were buying forwards because the dollar demand had pushed the riyal’s spot rate unusually far beyond its peg of 3.75 against the dollar.
The spot rate, which has been creeping up in the last few weeks, was trading at 3.7518 on Tuesday morning; over the previous several years it had never risen above 3.7510.-Reuters