“Hryvnia’s weakening in January is largely seasonal and is caused mostly by the closure of annual foreign currency contracts. By the end of January, the hryvnia may reach UAH 28.26-28.30 per U.S. dollar. However, the National Bank will then sell dollars in order to maintain the exchange rate at UAH 28.1 per U.S. dollar. Revenue from exports will facilitate inflows of foreign currency in February, which will strengthen the hryvnia up to UAH 27.9-27.95 per U.S. dollar. In the longer term, the hryvnia will strengthen further thanks to increasing exports, as well as the possible signing of a revised program with the International Monetary Fund,” chairman of RwS Bank Vladyslav Kravets commented.
Director of the Treasury of Bank Credit Dnepr Oleh Kurinnoy expects the hryvnia exchange rate to remain within UAH 27.5-29 per U.S. dollar for the period of January and February.
“If domestic and external risks are moderate, the hryvnia will be priced at around UAH 27.5-29 per U.S. dollar. Dynamics of revenues from exports is the most important factor affecting the exchange rate. The economy of Ukraine depends on exports as the main source of foreign currency inflow into Ukraine, while levels of exports are influenced by the conditions of commodities markets. Increasing payments to service Ukraine’s foreign debt in 2018, a possible expansion of the current account deficit, the success of cooperation with the IMF and other international donors, the position of the U.S. dollar against other world currencies, as well as internal and external political risks have a considerable effect on the hryvnia exchange rate,” Kurinnoy said.
Key factors pressuring the hryvnia exchange rate in late 2017 and early 2018 included: excess liquidity of the hryvnia on the market caused by final pays from state-owned and private enterprises required to close the financial year, value-added tax reimbursement to exporters at the end of the year, purchases in foreign currency made by foreigners early this month to withdraw dividends, as well as increased speculative demand on the cash market.
Hanna Tantsyura, the head of foreign exchange operations at Forward Bank, expects the Ukrainian currency to begin improving by the end of January.
“Increased business activity following long holidays is typical for the foreign exchange market. The highest exchange rate in 2017 was observed in mid-January. The pace of the hryvnia’s drop will be crucial. Given the growing market, any importer wants to close contracts as early as possible. On the other hand, no exporters tend to rush to bring foreign currency into the country, which leads to an even greater fall. After the holiday season ends, in late January, the market will return to stability. Hence, we are likely to witness a mild strengthening of the hryvnia and relatively stable dynamics,” Tantsyura said.
Director of the Treasury at Piraeus Bank Ihor Yakobchuk also expects the hryvnia to begin improving in the near future.
“Our experience tells us that the exchange rate tends to bounce back after a weakening in the beginning of January. We see no apparent reasons for significant fluctuations of the exchange rate in January,” he commented.
Yakobchuk explains the weakened hryvnia on 3-4 January by the seasonal factor. “The supply of currency exceeded the demand for it because the foreign currency that arrived on 29 December, 2 and 3 January was sold in the interbank market as mandatory sales on 4 January. This amount of currency was sufficient to meet the demand for foreign currency accumulated over the weekend,” he explained.
Nevertheless, leading expert of the department for sales of treasury products at OTP Bank Nikita Mishakov does not expect the hryvnia to build up until the beginning of spring.
“The hryvnia is likely to keep weakening, despite the seasonal increase in foreign currency earnings, which usually coincides with the start of the sowing campaign for farmers. This means that the hryvnia will not be able to improve earlier than spring. However, the depreciation may slow down during periods of hryvnia outflows into the budget, for instance, at times of quarterly and annual fiscal payments. The next such period is expected to occur around 20 February,” he stated.