19 January 2022, Wednesday, 13:50 306

Financiers Link Hryvnia Devaluation With Risks Of Increased Military Aggression From Russia

Редактор: Daria Zubkova

Financiers link the devaluation of the hryvnia with the risks of increased military aggression from the Russia Federation.

They announced this to Ukrainian News Agency.

"At the moment, the determining factors are the psychological factors associated with the unrelenting risks of increased military aggression from the Russian Federation. The pressure will continue until it becomes clear that the risks have really decreased. If the risk of an external threat is removed in the next one to two months, then a decrease of the rate is likely. In addition, in spring and until mid-summer, seasonal strengthening of the exchange rate is possible under the influence of fundamental factors," said Yevheniya Akhtyrko, an analyst at Concorde Capital.

According to her, the previous episode of the growth of the exchange rate under the influence of psychological factors is the period of the beginning of the pandemic in 2020.

Then the rate rose to the level of 28.5-28.6 UAH/USD.

"Most likely, the market will stop at these levels this time as well. Whatever the psychological pressure and panic, there is a level above which importers will not be able to massively buy foreign currency to continue their activities. The average annual hryvnia exchange rate is projected at 27.5 UAH/USD, and at the end of this year - 28 UAH/USD," Akhtyrko emphasized.

In turn, Hanna Zolotko, director of the treasury operations department at Unex Bank, said that the key factor in pressure on the hryvnia is geopolitical tension, in the center of which Ukraine is now.

It causes both a direct impact on quotations through an increase in demand for foreign currency from non-residents who “withdraw” from Ukrainian securities (since the beginning of the year, their portfolio has decreased by UAH 5.9 billion), and indirect.

"Now the devaluation sentiment in the markets is very high, and the demand for foreign currency has increased through most channels. The cash market has switched to a net purchase of foreign currency in January, importers have become more active, banks, especially speculative ones, are increasing their long position, business is buying foreign currency. In sum, this creates enough strong pressure on the hryvnia. And given the fact that exporters, on the contrary, are in no hurry to sell foreign exchange earnings, a tangible imbalance has arisen in the market between supply and demand. Whether there are economic prerequisites for these trends is a debatable question," Zolotko said.

According to the banker, of course, without the growth of geopolitical tensions, such exchange rate dynamics could not have happened.

However, in the markets, the expectation of an event is quite a material factor that has a significant impact on quotations.

“There are a huge number of examples of this. To summarize, the real reason for the devaluation of the hryvnia in mid-January is purely psychological factors. There are not so many objective economic prerequisites for the growth of quotations now. Even the indicated outflow of funds from foreign investors from government bonds since the beginning of the year is equivalent to USD 210 million. This is the average daily trading volume through the Bloomberg terminal at the Ukrainian Interbank Foreign Exchange Market. That is, this factor alone would not be enough for the current exchange rate dynamics. This is another illustration of the strength of psychological pressure," Zolotko added.

Answering the question to what level the national currency could devalue in the near future, the banker replied that everything would depend on the development of the geopolitical situation.

If assume that de-escalation starts tomorrow, the hryvnia will immediately and very rapidly begin to strengthen, investors will rush to buy dropped in price bonds, banks and businesses will start selling the currency from a “long” position, exporters will become more active.

"However, it is impossible to predict any time frame and the likelihood of such a scenario - such estimates lie outside the plane of economic analysis. As long as the tension in the information field remains high, psychological pressure will continue to push quotations up. In such circumstances, the relevance of any exchange rate forecasts is heavily discounted. In fact, one informational message is enough to turn the course or lead to increased pressure in a matter of minutes," the banker summed up.

As Ukrainian News Agency earlier reported, since the beginning of the year, the hryvnia exchange rate on the interbank market has decreased by 3.84% from 27.32 UAH/USD to 28.37 UAH/USD.