Hryvnia exchange rate forecast in January: One can make money on devaluation

Author

Vadym Makeiev

The dollar and euro exchange rates in Ukraine in December were relatively stable. Despite the geopolitical risks, the energy crisis, and the government's fulfillment of obligations to contractors and counterparties, the dollar exchange rate on December 29 was the same as at the beginning of the month—27.2 UAH.

At the same time, the experts are making pessimistic forecasts. In January, the weakening of the hryvnia will be facilitated by a trade balance deficit, coronavirus, and political instability where tension on the border with Russia remains the greatest threat.

Dollar exchange rate forecast for January 2022

The beginning of January on the interbank foreign exchange market will be calm due to the large number of holidays. More significant fluctuations in the rate are expected after January 10 when most of the trading participants will actively work on the interbank market. According to Yurii Netesanyi, the Managing Partner at Atlant-Finance, in January the dollar exchange rate should be expected at the level of 27.2—27.7 UAH. Andriy Shevchishin, the head of the analytics department at the group of companies Forex Club, predicts the rate of 28—28.5 UAH per dollar.

According to the experts, the main positive factors affecting the hryvnia exchange rate in January will be:

strengthening monetary policy, in particular, raising the NBU discount rate to 9%;
transactions of the labor migrants. This is one of the key factors that will support the hryvnia exchange rate next year. According to the NBU forecasts, in 2021 they can reach $14.3 billion, while in 2020 they amounted to $12.12 billion;
high demand and prices for export goods (agricultural products, iron ore, etc.).

"In 2022, the agricultural companies will not be able to show such high performance as in 2021 again. Primarily due to the growth in the cost of fertilizers, fuel, and seeds. Thus, the high cost of food will be largely offset by the high production costs. But, on the other hand, the increase in the cost of the sowing campaign will spur agribusiness to sell more currency on the interbank market," Netesanyi explains.

Among the negative factors, it is worth highlighting:

energy crisis in the world. Gas prices at European hubs remain high. Accordingly, Ukrainian importers have to buy gas, coal, фтв electricity at inflated prices, and that leads to an increase in demand for currency;
trade balance deficit. January is a month of high energy consumption and limited exports;
coronavirus and its new variants. Extension of the quarantine restrictions for the Q1 of 2022 and increased tax pressure on business does not facilitate the Ukrainian economy recovery;
foreign policy tensions will persist, and that will affect the purchase of foreign currency by the population;
inflation will be high, which will require a revaluation of the currency against the hryvnia;
non-residents may intensify the outflow of investment, which is related to a decrease in the economic stimulus by world central banks, as well as the forthcoming tightening of the US Federal Reserve monetary policy .

The situation in foreign markets can be added to all this. "At the end of 2021, there is a rapid devaluation of the Turkish lira. Since Turkey is one of the main trade partners of Ukraine, the economic crisis in this country will affect the hryvnia stability. In addition, the US Federal Reserve began to cut its quantitative easing program. At the same time, the liquidity of the US banking system decreases. The US discount rate is expected to rise in 2022. All this will result in the strengthening of the dollar against world currencies, including the hryvnia. According to my forecasts, in January the hryvnia may depreciate to 28 UAH per dollar, if Russian aggression does not begin. In this case, the devaluation will be very high and hardly predictable," Oleksandr Khmelevsky, Candidate of Economic Sciences, explains.

Forecast of the euro and ruble exchange rate in January

According to Shevchishin's estimates, in January, the euro/dollar pair may be trading at 1.1, and, accordingly, the euro rate will be at the level of 30.5–31.3 UAH. The situation in Europe is quite difficult due to high gas prices and an increase in the Covid incidence. At the same time, the ECB maintains a soft monetary policy that puts pressure on the euro.

The Russian ruble is under pressure due to possible hostilities and sanctions. Its exchange rate against the hryvnia will fluctuate at the level of 0.365-0.375, Khmelevsky predicts.

When is it worth buying currency

The experts recommend using the hryvnia devaluation to earn money. "Based on the expectations of the rate of 28.5 UAH per dollar, at the current level of 27.3 UAH per dollar, purchasing is profitable, since it can bring 4.3% excluding the conversion cost. This is a high profitability compared to other available instruments at the moment," Shevchishin believes.