GRAPHIC-Saudi riyal hits 12-yr low in 1-year forwards market

By Sujata Rao
LONDON, Nov 20 (Reuters) - The Saudi riyal hit its lowest
against the dollar in more than 12 years on Friday in the
one-year forwards market as falling oil prices exert fresh
pressure on the pegged currency.
The riyal is pegged to the dollar at around 3.75 SAR= and
authorities have pledged to preserve the three-decade old link
despite hardships caused by oil's price slump and the dollar's
broad strength as investors prepare for a lift-off in U.S.
interest rates.
One-year dollar/riyal forwards rose 4.25 basis points
SAR1Y= pricing the Saudi currency around 3.793/3.799 in a
year's time, and implying depreciation for the 3.75 spot rate,
this graphic shows: http://link.reuters.com/wux95w

"Do I believe in disruption of the peg? No, at least not in
2016. But pressure on local banks is definitely on and the
epicentre is the oil price," said Luis Costa, head of CEEMEA FX
and debt strategy at Citi. "The tough situation with hard
currency liquidity is driving up the forward points."
With over half a trillion dollars in reserves, Riyadh has
ammunition enough to avoid dumping the peg as some other oil
exporters such as Kazakhstan have been forced to do.
But with the oil shock, a budget deficit that may top $100
billion this year and an expensive currency, Saudi Arabia could
"buckle" in coming years, delegates at the Reuters investment
outlook summit warned this week ID:nL8N13C45A .
The International Monetary Fund has warned the kingdom could
run out of cash reserves in less than five years.
Dollar/riyal forwards have risen since the oil slide began
last June and spiked in August when China devalued its currency.
With oil again headed lower, they are rallying again.
Analysts at Scotiabank noted a $75 billion fall in reserves
from August highs above $700 billion and Saudi's need for a $100
per barrel oil price to fund its budget. The repercussions of a
weaker riyal would be wide-ranging they said.
"Given the durability of the peg, a devaluation be a shock
and would likely spill over into the likes of the Canadian
dollar and Norwegian crown," Scotiabank told clients, referring
to the currencies of other oil producers.
Both those currencies have dropped around 15 percent this
year against the dollar. NOK= CAD=

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One-year dollar/riyal forwards http://link.reuters.com/wux95w

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