A sudden rise of dollar against Iraq dinar

Oct 30, 2006

Asharq Al-Awsat – The dollar exchange rate varied between the Iraqi Central Bank and local markets, especially after the official auction to sell currencies stopped convening for ten days because of Eid al-Fitr, last week.

The observers of the currency market confirmed that any occasion interposed by public holidays, specially those that continue for several days, is expected to help raise the value of dollar against Iraqi dinar but the difference is limited and does not exceed in the most serious cases 1500 dinars to the dollar.

Such increases in the view of some speculators will be temporary, and they fear from the Iraqi Central Bank being a safety valve of the Iraqi dinar and market. If the Bank thought that the market rose, as the case happened a year and a half ago, it would suspend its vacation to begin offering large amounts of hard currency in the market directly and at prices lower than the circulation price; that is why most speculators are afraid to keep large quantities within their bags due to the risk of loss.

But, dealing in the market is done on the basis of supply and demand; this means that small speculators, dealing directly with citizens, would achieve very high profits for this reason.. And about their expectations of market prices, the observer demonstrated that the dollar exchange rate in the central auction, held in the Iraqi Central Bank, finally began to retreat before the Iraqi dinar, as the Bank started floating huge amounts of dollars because of the government’s need for local cash, especially as the volume of government’s consumption increased recently and this requires securing these expenses through the auction. The supply has increased lately from $35 million to $60 million per day.

The Central Bank started its daily auction with 1470 Iraqi dinars to the dollar after being 1477. As for the markets, the dealers were not affected by the sudden decline but they would rush to raise their prices at the same moment with the increase; thus, it is expected for the demand to increase during these ten days, which would not be attended by the Iraqi Central Bank, but not much.

About the last formal cession of the Bank, the auction manager clarified that the sale price at which the auction came to was 1470 Iraqi dinars to the dollar, accepted by the Bank, according to the buyers’ desire and sold $43.8 million at the same price.

The quantity sold in cash to Banks and their clients was $18.690 million at the price of 1470 with the addition of 11 points as prices contrast and profitability ratios, while the quantity sold for remittances to out of Iraq was $25 million, at 1470 Iraqi dinars.

This means that the amount of remittances surpassed the sale quantities of banks and this is due to the high demand for transfer, especially after the increased need to acquit the companies collaborating with the outside and the start of the reconstruction phase in Iraq.