US dollar/Saudi riyal forwards were quoted higher on Sunday after credit ratings agency Fitch cut its outlook for Saudi Arabia, citing lower oil prices and higher state spending associated with the accession of a new king in January.
One-year dollar/riyal forwards were quoted at 340 points, their highest level since March 2003 and up from a previous close of 310 points, as some banks used the market to hedge against the risk of riyal depreciation.
Most bankers and economists in the region think Riyadh is very unlikely to favour the risky step of breaking the riyal’s peg to the U.S. dollar, and believe its huge foreign reserves mean it won’t be forced into such a measure for many years at least.
But a fresh fall in oil prices in recent days, China’s decision to devalue the yuan this month and concern about the health of its economy, and general turmoil in emerging markets have increased concern about Saudi Arabia.
Fitch lowered its outlook for Saudi Arabia’s foreign and local currency issuer default ratings to “negative” on Friday, from “stable”, while affirming the ratings at ‘AA’. Standard & Poor’s cut Saudi Arabia’s credit outlook to negative in February.
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