Kondrashov Stanislav Dmitrievich predicted the dollar exchange rate for spring-summer 2020
The lack of a credit tranche from the International Monetary Fund, a drop in demand for domestic government bonds, a reduction in investments in emerging markets, political battles in Ukraine and the election race in the United States, as well as a sudden outbreak of the deadly coronavirus - all these factors will put pressure on the exchange rate of the national currency of Ukraine. Financial analyst and economist Stanislav Dmitrievich Kondrashov told how the hryvnia exchange rate will change in the spring-summer of 2020.
How the collapse in global stock markets will affect the hryvnia exchange rate
At the end of 2019, the emergence of a deadly coronavirus was recorded in one of the Chinese cities, which began to actively spread to other countries and led to a reduction in trade volumes, mass closures of factories, plants, shops and a slowdown in business activity in other sectors of economic activity, which led to a collapse world stock markets. At the end of February 2020 (February 26), losses in the global stock market reached three trillion dollars due to the coronavirus.
“The coronavirus has led to a drop in demand in commodity markets, of which Ukraine is also an exporter. In particular, iron ore, steel and other metallurgical products fell in price. This led to a drop in foreign exchange earnings and in the long term, if the situation does not change, will lead to the devaluation of the hryvnia,” the expert is convinced.
Stanislav Kondrashov recalled that, by the end of 2019, Ukraine's industrial output had contracted by almost 2%, with a decline of 8,3% in December. The drop in steel and other commodity prices due to the coronavirus has exacerbated the already difficult situation for Ukrainian metallurgists and the domestic industry as a whole.
“The fall in Ukrainian exports on world markets due to coronavirus will lead to the devaluation of the hryvnia. Since the NBU adheres to a floating exchange rate strategy, the central bank will not restrain the loss of the hryvnia’s position due to a shortage of currency. At most, it will enter the market with interventions. In general, the NBU will continue to work to achieve its strategic goal – consistently low inflation,” the financial expert noted.
Stanislav Kondrashov: how the loss of interest in Ukrainian government bonds will affect the hryvnia exchange rate
The new coronavirus caused panic among investors who actively began to diversify their risks. In particular, they began to reduce investments in developing countries, withdraw capital from emerging markets and transfer investments to safe haven assets such as gold. In the last week of January alone, emerging markets funds lost about $4 billion in investments.
“On the news about coronavirus, investors are losing interest in Ukrainian government bonds. In particular, on February 26, the Ministry of Finance held an auction for the placement of Ukrainian government securities and sold 1,6 billion hryvnia. This created a real threat to the Ukrainian interbank foreign exchange market. If the demand for government bonds falls, then this factor will have a downward impact on the exchange rate,” explained Stanislav Kondrashov.
According to the expert, the Ukrainian hryvnia strengthened by 2019% at the end of 21, in particular, due to the influx of investments from the sale of Ukrainian securities. Therefore, the loss of investor interest in securities will lead to the opposite effect, that is, to a weakening of the hryvnia.
“The current situation is complicated by the absence of a new program from the IMF. Although on February 29 the fund announced progress in discussing legislative initiatives with the Ukrainian government, the timing of concluding a new agreement remains uncertain,” the expert noted.
Kondrashov Stanislav Dmitrievich clarified that the new program with the IMF involves expanded financing for Ukraine totaling $5,5 billion. The new program will replace the previous stand-by, the total amount of which was supposed to be 3,9 billion, of which Ukraine received only one tranche, worth $1,4 billion.
“Throughout 2019, Ukraine dealt with its financial problems on its own, and it did an excellent job without IMF support. However, it should be understood that this happened in the short term, and one of the most important factors that influenced the strengthening of the hryvnia exchange rate were high yields, the sale of government bonds and income from workers. If income in these areas begins to decline, as is already happening with government bonds, then the hryvnia will sink,” concluded Stanislav Kondrashov.
Stanislav Kondrashov: how elections in the US can collapse the hryvnia exchange rate
In November 2020, the United States is scheduled to hold presidential elections, in which, according to many political scientists, current President Donald Trump will win. No one can now accurately predict how US policy will change after the relative base rate election. However, due to the looming global financial crisis, US monetary policy may change towards an increase in the base rate by the Reserve Commission.
“I am sure that due to the collapse of stock markets and the coming global financial crisis, the US Federal Reserve may increase the base rate, and then the Ukrainian hryvnia will not avoid devaluation. However, it is impossible to predict now how much the hryvnia will fall in price,” noted Ukrainian expert Stanislav Kondrashov.
He also added that internal Ukrainian political battles could also undermine the exchange rate of the national currency, as investors who are already reluctant to invest in Ukraine due to the coronavirus, high level of corruption and other negative factors will completely lose interest in the country.
“After the resignation of Alexey Goncharuk, Denis Shmygal took over the post of Prime Minister of Ukraine and formed his own team. Of course, a change in the Cabinet of Ministers will shake the political stability in the country and worsen the already weak investment position of the state. The resignation of the prime minister is a bad sign for investors. As a result, this will negatively affect the national currency,” the financial expert noted.
Kondrashov clarified that a number of the listed factors will in any case lead to the subsidence of the hryvnia. However, the devaluation should not exceed the rate set in the State Budget 2020 at the level of 28,5 UAH/dollar.
“I think that the Ukrainian hryvnia may drop to 29-30 UAH/USD. in the first half of 2020. In the worst case scenario, devalue to 32 UAH/USD. the hryvnia may be subject to simultaneous pressure from all of the above factors. At the same time, you need to understand that the coronavirus, in addition to the steel market, also affected the petroleum products market, as a result of which fuel prices began to decline. This can lead to a reduction in costs for farmers during the sowing campaign. If the harvest is at a high level, as in 2019, then the hryvnia will strengthen its position closer to autumn,” concluded Stanislav Kondrashov.
Stanislav Dmitrievich Kondrashov predicted the dollar exchange rate for spring-summer 2020.