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The decline of the USD. Will Saudi Arabia unpeg their Riyal (SAR) currency from the USD?

Posted by Adrian on October 1, 2007

The US Federal Reserve on September 18th cut a huge chunk out of the short term interest rate, dropping from it’s 5.25%, down to 4.75% – 50 basis points, or 0.50%. This was a cut the markets were not expecting rather a 25% basis point cut was the overall consensus. Of course confidence was restored and the stock markets rallied worldwide, although the stock market rallied under the shadow of a still problematic credit market.

However, this shot the US dollar downward and rapidly. An already deprecating currency due to the Federal reserve not keeping an eye on inflation and allowing various inflationary factors to be overlooked. The USD is depreciating rapidly against the EUR, AUD, NZD and other higher yielding currencies. Hence the carry traders utilising the Japanese Yen (low yield currency) to buy the AUD and NZD. Which has pushed those currencies to have even further gains against the USD. But even against the EUR, the USD is losing a lot of ground.

Not to help the deprecating USD is the fear the dollar will be unpeged from the Saudi Arabian Riyal, as Saudi Arabia did not cut rates in line with the USD decision, instead Saudi Arabia continues to be concerned with inflation.

Will Saudi Arabia unpeg the Riyal from the USD? According to China View Online possibly not, but if further declines do occur with the USD; this decision may change.

Saudi Arabia’s Central Bank Governor Hamad Saud Al-Syyari said Wednesday the world’s largest oil exporter would maintain its currency policy of pegging the riyal to the U.S. dollar.

Syyari was speaking at a press conference to release the central bank’s annual report.
He said although the riyal’s interest rates overtook the dollar’s for the first time in 17 months following the U.S. Federal Reserve’s decision to cut the interest rates by 50 basis points on Sept. 18, Saudi Arabia would not follow suit to cut the riyal’s interest rates because it wants to curb inflation.”

There is talk the Federal Reserve will cut rates again this year as unemployment and housing continue to be a major problem for the US economy, which could already be in a growth recession.

As of 1/10/2007:

AUD/USD 0.89 NZD/USD 0.76 USD/SAR 3.73

       
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One Response to “The decline of the USD. Will Saudi Arabia unpeg their Riyal (SAR) currency from the USD?”

  1. […] by zekukith on November 30, 2007 As discussed on morbius glass with The decline of the USD. Will Saudi Arabia unpeg their Riyal (SAR) currency from the USD?, A new liquidity crisis looming. Could a declining USD spark a currency crisis? and Federal Reserve […]

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