Rabat – After the election of Donald Trump as the president of the United State of America, the dollar increased markedly. This Wednesday, however, it registered a sharp drop against the dirham, the euro, and other currencies.
The greenback dropped 1.4 percent against the Japanese yen and slipped 0.5 percent against the euro. US stock markets were also suffering, with many major global indexes declining by 1 percent or more.
The dollar’s decline followed an ugly trading session in the US on Tuesday. The dollar index, which measures the greenback against a basket of rival currencies, dropped to territory unseen since just after Trump’s election in early November.
The dirham on all 2015 highs against the dollar
While this bad news for Americans, it is good for the Moroccan dirham. Since January, the dirham has appreciated by 5 percent against the dollar, the latter reaching its lower rates against the Moroccan currency since 2014, according to Bank Al Maghrib’s report.
This drop in the dollar is quite favorable for the Moroccan economy, since raw materials are denominated in dollars. The few listed companies that charge a part of their turnover in USD, especially in the technology sector, better have covered their costs, otherwise the negative currency effects could be harsh.
Throughout the last months, the dirham gained in value against the dollar. On the Casablanca Stock Exchange, traders display the dollar at MAD 9.4350, compared to over MAD 9.8000 by late June, when the Moroccan central bank’s governor was warning against speculations.
Abdellatif Jouahri was furious against the commercial banks, whose speculations on a probable currency devaluation resulting from the dirham liberalization reform spread like wildfire. As a result, operators rushed to buy foreign currency, draining MAD 44 billion out of the national foreign currency reserves in a matter of one month.
The commercial banks managed to win the first battle, forcing Bank Al Maghrib to delay its exchange rate regime reform scheduled for July. However, with the current acute drop in the dollar, they took a hard hit. The operators who rushed to cover themselves against a devaluation of the dirham compared to the greenback are for the moment the sole losers.
A strong euro!
On the other hand, the euro is benefiting from the weakness of the dollar and the US’ political confusion. Moreover, the European Central Bank is far from reducing its balance sheet, which makes the euro even more profitable compared to the dollar.
The euro is thus advancing against other currencies, including the dirham. This Wednesday the traders showed that the EUR/MAD has reached MAD 11.1590 against an average level less than MAD 11 last June. Now, those who have covered themselves in euro amid the flexibility of the dirham reform are quite the winners at the moment.
Finally, on the Casablanca Stock Exchange, the Masi index, which ended July with an annual performance of 4.78 percent, posted a performance of 0.56 percent in euros and 11.79 percent in dollar terms.
The foreign exchange market is among the most volatile and is strongly influenced, inter alia, by macroeconomic indicators in Europe and the United States. The evolution of the USD/EUR parity will be guided by the turn of the monetary policies of the European Central Bank and the US Federal Reserve.
The ECB, which has hitherto led an accommodating monetary policy to support growth, is slowly moving towards a reorientation of its strategy as the Fed before it. In the short term, the euro could still strengthen against the dollar and approach 1.18, analysts expect.
What does this mean for the Moroccan economy?
The impacts of the variation of the dirham will be diverse. Foreign trade achieved its best performance in 2014 and especially in 2015 with a strong euro. But the declines in the trade deficit in these two years are more to be accounted for the drop of oil prices.
The current context would make it possible to reduce the energy bill provided the price of the barrel does not rise. Oil prices rose 30 percent in the first half of 2017 while remaining at an average of USD 52.2 between January and June, far from pre-2015 levels.
During the first six months of 2017, the sharp increase in energy products imports contributed to the deterioration of the trade deficit by 8.2 percent to MAD 94 billion at the end of June. For industrialists and unfavorable hedges, the evolution of the USD/MAD parity is also advantageous since it reduces the cost of inputs.
Today, the situation is quite more relaxed compared to the beginning of the year. The positive points are to be found in the exporters as well.
Morocco sells two-thirds of its goods in Europe, mainly in Spain and France. The depreciation of the dirham against the euro could support exports to these markets, even if price is not the only variable that counts.
However, the OCP, which weighs nearly 20 percent of Moroccan exports and is more active in the dollar area, will be less excited by the weakening dollar. That said, currency fluctuations in recent months remain relatively small.
