Qatari riyal slips to 11-year low against dollar

Credit default swaps continue edging up on diplomatic rift

DUBAI, June 7, (RTRS): The Qatari riyal fell to an 11-year low against the US dollar in the spot market in late trade on Wednesday due to concern about the long-term economic impact on Qatar of its diplomatic rift with other Gulf Arab states.

The dollar was bid at 3.6517 riyals, its highest level since July 2005, according to Thomson Reuters data. The riyal is pegged at 3.64 to the dollar by the central bank, which only allows small fluctuations around this level.

The riyal remained steady at a premium of 250 points to the dollar in the one-year forwards market, which banks use to hedge against future moves in the spot rate.

A Qatari central bank official told Reuters on Tuesday that Qatar had huge foreign reserves which it could use to support its currency if necessary.

Meanwhile, prices of Qatari credit default swaps, used to insure against the risk of a sovereign debt default, continued edging up early on Wednesday because of the diplomatic rift between Qatar and other Gulf states.

Five-year CDS were at 75.3 points, the highest level since mid-February, compared to 72.4 late on Tuesday and 65.5 at the end of last week, before Saudi Arabia, the United Arab Emirates and Egypt cut ties with Qatar, accusing it of backing terrorism.

Investors are concerned about the possible disruption to Qatar’s banking system, which has depended on Gulf loans and deposits to support its rapid growth.

However, CDS levels suggest oil and gas prices are in the long run a much bigger factor for confidence in Qatar, the world’s biggest liquefied natural gas exporter. Qatari CDS hit a peak of 137 in February 2016, when oil prices were slumping.

Qatari CDS imply a default probability of 5.1 percent in the next five years. They are still substantially lower than Saudi Arabian CDS, which are at 90.2.