USD/PKR: Pakistani rupee surge could be short lived

September 28, 2023 07:00 PM AEST | By Invezz

USD/PKR: Pakistani rupee surge could be short lived — Image source: Invezz

PKR gains could be short-lived

The USD/PKR exchanged rate has caught many investors and analysts by surprise. While the US dollar index (DXY) has surged to $106.70, the highest level since November last year. The index has soared by almost 7% from the lowest point in July.

Most currencies, including the euro, sterling, Swiss franc, and South African rand have all crashed against the USD. Therefore, in such a situation, you’d expect a risky currency like the Pakistani rupee to be among the worst performers.

The US dollar has surged as investors remain concerned about the economy. The fear and greed index has crashed to the extreme fear zone of 24 while the VIX is approaching 20. Further, American stocks have retreated after the Fed pointed to more rate hikes to fight the elevated inflation.

It is unclear why the Pakistani rupee has surged since the country is still at risk. A likely reason is that the government has been actively cracking down on the illegal dollar trade. Precisely, the government is fighting the black market, where people buy and sell dollars without any record. It is also fighting remittances through informal channels.

These actions have been welcomed by many economists, who believe that they could boost the rupee after it plunged to the lowest level on record. However, I believe that the country’s fundamentals are still in trouble.

For one, Pakistan has a $1 billion payment due in 2024 and more others in September 2025 and August 2026. These dollar maturities will likely put more pressure on the Pakistani rupee. Also, the rupee will likely retreat ahead of the next general election.

USD/PKR technical analysis

The daily chart shows that the USD to PKR exchange rate has been in a steep freefall in the past few weeks. It has crashed from a high of 307.27 to a low of 287.76. The pair has moved below the 50-day and 25-day exponential moving averages. The current price is important since it was the highest point on June 12th, July 26th, and August 3rd.

Therefore, I suspect that the USD/PKR pair will resume the bullish trend and retest the all-time high of 307.27. The stop-loss of this trade will be at 280.

The post USD/PKR: Pakistani rupee surge could be short lived appeared first on Invezz.

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