Jitters are rising over Qatar’s currency after yesterday’s decision by four Arab nations to cut diplomatic ties with the government, with futures contracts suggesting investors are worried that an escalating crisis could make it impossible for the central bank to maintain its peg against the dollar.
The Qatari riyal is fixed at a strict rate of around QR3.64 per dollar. However, the premium demanded to guarantee future currency trades has rocketed in the last two days, hitting levels last seen during the 2008 oil-price collapse.
Dollar-riyal 12-month forward points have more than doubled from 202 to 475, according to Bloomberg data. That means traders wanting to exchange riyal for dollars 12 months from now would have to pay Q3.6955 per dollar using outright forward contracts, .
When investors last demanded such a steep premium, oil prices were tumbling from around $145 a barrel in mid-2008, to about $30 by the end of that year.
This time, investors fear a prolonged dispute – which has already seen companies such as Emirates suspend all flights into Qatar – could put pressure on the riyal if government finances suffer from reduced trade and foreign investors pull assets out of the country.
Analysts at ING suggested that the pressure could be short-lived, however, pointing to the Qatari sovereign wealth fund’s estimated $350bn worth of assets which could be used for support. They said “at this stage we’re not looking for a major run on the Gulf Cooperation Council pegs”, but warned that “this space bears watching – Washington’s stance to Qatar will be key”.
Ratings agency Fitch agreed that Qatar’s large reserves of foreign assets “should allow it to manage temporary macro-economic disturbances”, but warned that a prolonged conflict could have a serious impact on measures such as inflation, trade, tourism and growth.
It predicted that “the countries involved will seek to avoid a prolonged standoff with the attendant risks to Qatar’s economy and regional stability”, but added that “there is considerable uncertainty given the punitive nature of the actions announced on Monday”.