The dirham appreciates against the dollar, an opportunity for investors to take advantage of the continued weakening of the dollar by reducing their exposure to very short-term hedging transactions.
The dirham appreciated for the fourth consecutive week against the dollar. The USD/MAD pair fell -0.33% from 10.22 to 10.19 in one week. According to analysts at Attijari Global Research (AGR), this change is explained by a basket effect of -0.22% linked to the weakening of the dollar internationally and a positive liquidity effect of -0.11%. . Thus, the dirham’s liquidity spreads fell back by 12 basis points (PBS) this week to 3.04%. These differences should continue to narrow in the short term due to the expected improvement in export flows.
Volatility reigns
Volatility continues to reign in the forex market. These uncertainties are linked to the evolution of inflation and to expectations of the monetary decisions of the major central banks. AGR analysts recommend that dollar importers “take advantage of the continued weakening of the dollar by reducing their exposure to very short-term hedging”.
Moreover, brokers’ EUR/USD parity forecasts have been stable this week. This would change to 1.08 in Q2-23 to reach 1.10 in Q3-23. On an annual basis, the target is 1.11 in 2023. It should change to 1.12 in Q1-24 before reaching 1.14 in 2024. It should stabilize at 1.14 in 2025 against 1.15 in previous week. In the long term, the target stands at 1.15 in 2026 against 1.16 initially and at 1.16 in 2027 against 1.15 previously.
AGR also notes that US inflation fell to 6.0% in February 2023, after 6.4% in January, and that in March the Fed decided to raise Fed Funds rates by 25 PBS. They are now within the range [4,75%-5,00%]. In addition, the US employment report for March came out solid with an unemployment rate of 3.5% against a consensus which forecast a status quo at 3.6%. Expectations are in favor of another rate hike of 25 PBS in May. In the Eurozone, inflation fell to 6.9% in March from 8.5% in February, according to preliminary figures from Eurostat. Despite this drop, it remains well above the 2% target. The ECB decided to raise its main interest rate to 3.50%, an increase of 50 PBS. The ECB should logically catch up in terms of monetary tightening, which would support the euro in the short term.
AGR maintains its forecasts
Given the forecasts for the EUR/USD parity and the liquidity conditions of the foreign exchange market, AGR is maintaining its USD/MAD forecasts for one, two and three months. EUR/USD forecasts from international brokers have been stable this week. They are in favor of an appreciation of the dollar over the next 3 months compared to spot levels.
According to AGR’s forecasts, the dirham’s liquidity spreads should remain stable over a one-month horizon, then fall from spot levels over a two-month horizon and stabilize over a three-month horizon.
Under these conditions, the target levels of the USD/MAD parity stand at 10.25, 10.20 and 10.20 respectively, against a short spot of 10.19. The target levels of the EUR/MAD parity stand at 11.07, 11.02 and 11.02 on the three horizons, against a short spot of 11.12.
The EUR/USD pair appreciates
The EUR/USD pair appreciated this week by +0.61%, rising from 1.0839 to 1.0905. The downturn in manufacturing activity in the United States is deepening and could accelerate with the continued tightening of credit conditions. A situation that should benefit the euro. At the end of the week, the US employment report came out strong. The 236,000 jobs created in March remain in line with expectations, while the unemployment rate fell from 3.6% to 3.5%. Expectations point to a further rise in Fed Funds rates of 25 PBS at the next meeting in May.
Sanae Raqui / ECO Inspirations