Foreign Exchange Rates Keep Rising in Tehran

The US dollar is once again at the center of attention in the Iranian currency market with its recent pattern on the upside, the only notable difference this time around being that the higher prices come as the central bank is anticipating a unified currency rate by the end of March.

The greenback has gained substantially compared to the early weeks and months in the current fiscal year when the unofficial market did not -- at least in the first few months – experience any significant turbulence.

But a month ago and with the start of preparations for the annual Arba'een pilgrimage to neighboring Iraq, demand for foreign currency increased and the open market rates began its rally moving above 36,000 rials to a dollar.

The upset victory of the Republican Donald Trump in the US presidential election became an added source of concern and pushed up forex rates. On the first day in Tehran after the elections, the US dollar sold for 36,580 rials, up from the previous day's close of 36,400.

The dollar even crossed 37,000 rials briefly and it was reported that due to the wild swings in the market some moneychangers had pulled down their shutters.

However, three weeks after the chaotic vote in the US, the dollar's rising trajectory shows no sign of abating. On Sunday, it broke the 38,000 rials threshold –a point few thought it would cross– and reached 38,400 rials in latest pricings. This entails a more than 6,000 rials discrepancy between the unofficial and official rates which undermines the Central Bank of Iran's repeatedly emphasized plan to unify the rates before the fiscal year is out in March.

Reasons Behind the Rally

Observers say Trump in the White House could have wider implications for the rate of the US dollar in Iran. He has been a vocal critic of the JCPOA – Iran's nuclear accord with world powers – calling it "the stupidest deal of all time" and is therefore considered a threat by pundits who say he could potentially hinder Tehran's foreign-exchange transactions.

Not everyone shares this concern. According to ISNA, Iran's senior political and banking officials have since tried to give assurances that the US presidential vote is "inconsequential" to Iran and particularly its nuclear deal. "Unlike those who are celebrating or lamenting the outcome of the US elections, we neither celebrate nor lament it, and it makes no difference to us and does not concern us because, with God's grace, we are prepared for any eventuality," the Leader Ayatollah Seyyed Ali Khamenei said after the highly contested American election.

A recent CBI ruling says that any amount higher than $10,000 coming in or out of the country should be declared to the authorities according to anti-money laundering rules, which experts say could influence the dollar rate and further fuel its rally.

The timetable of setting a rate for the dollar in next year's budget is another factor that affects the market as the year comes to an end (March 20). Speculation and debates are ongoing, but a 33,000 rial rate has reportedly been considered for the US dollar in 2017-18 budget by the government.

Money supply is the other indicator with the potential to manipulate market rates. Given the opinion of market watchers that a rise in liquidity could trigger  increase in forex rates, the current volume of liquidity – which is reported to be higher than 11 quadrillion rials ($243 billion) – can and will certainly play a role.

All in all, market analysts believe that the price of the dollar will keep on rising with the potential to climb to 39,000 rials and above.

Surge in the Gold Coin

The benchmark Iranian gold coin – Bahar Azadi – also seems to be on the rise and after a surge at the beginning of the week it was being traded at 11.14 million rials ($347) at latest count.

The US presidential election also had an effect on the gold coins. One day after the election, the Bahar Azadi coin traded for 11.28 million rials ($352) which was 1.62% or 180,000 rials higher compared to the previous day's close.

After a few calm days in the market, the gold coin seems to be on the rise again, beginning to show signs of a surge at the beginning of the current week on Saturday.