Euro continue to drop - FORECAST

Baku.25 February.REPORT.AZ/ Head the Department of Forex strategy of the Saxo Bank John J.Hardy comments questions of Report News Agency on devolvation of manat, as previously declared by the Central Bank of Azerbaijan Republic (CBAR). 

'This was not a surprise, given the fact that the central bank telegraphed the decision beforehand, though some are perhaps surprised at the magnitude of the devaluation. I’m not particularly surprised. The size of the move makes sense given that oil prices have fallen as much as they have – by more than 50% at recent lows and the profits per barrel have fallen far more. Now, oil prices are in expensive US dollars while many of Azerbaijan’s imports are from Russia, Turkey and Europe, where currencies have been quite weak lately. So the bank perhaps balanced the magnitude of the drop in export terms (USD) versus the falling price of imports. A devaluation was necessary because in a way, when a country is extraordinarily dependent on oil exports and oil production, the oil itself is really the country’s effective currency, so it makes sense to see a devaluation of this size', the Saxo Bank official says. 

My forecast is for it to fall in the 1.05-1.07 range over the next few quarters before ending the year possibly around 1.10. There are downside risks to that view if the US Federal Reserve hikes more than I expect it to, but I think most of the Euro weakness is behind us even if I see at least one more sizable sell-off before some modest recovery further out, he added. 

He stressed that, urrency issues are clearly very important for the country - especially the pricing of exports versus imports as pointed out above. The Euro should remain a very important currency in the years ahead, though Europe has a lot of work to do.