From the beginning of April, the national currency has shown weakening. Thus, from the 1st day of this month, the hryvnia depreciated against the dollar by 19 kopecks and even exceeded 28 UAH per dollar, and against the euro it fell by 63 kopecks—to 33.32 UAH.
The impact of the military exacerbation in the Donbas on the exchange rate
The conflict escalation in the east of the country and the increase in the number of Russian troops on the border with Ukraine is not the only factor that is now playing against the hryvnia, says Vitaliy Shapran, a member of the Council of the National Bank.
«The troops movement on the territory of the Russian Federation creates some tension in the region, and this movement is noticed not only by military specialists of NATO countries, but also by foreign investors, who are paying less and less attention to the bonds of our government. Military risks always discourage investors—even those willing to take high credit risks. I believe that after the tension is relieved, the market will return to normal life very quickly. Russia is now hardly in the economic position to attack and bear the burden of war.»
According to the Managing Partner at Atlant Finance, Yurii Netesanyi, the escalation of the situation affects the fact that the hryvnia does not increase seasonally, but even weakens a little. However, if the situation in Donbass gets out of control and full-scale hostilities begin, this will negatively affect the hryvnia exchange rate, and the regulator will begin to enter the interbank foreign exchange market with the sale of foreign currency at the level of 28.5-29 UAH per dollar. At the same time, the national currency may depreciate up to 30 UAH per dollar.
Evgeniya Akhtyrko, an analyst at the investment company Concorde Capital, also agrees with the experts. She notes that the situation escalation in the east of the country is a factor in the exchange rate growth that we have been witnessing since last week.
"Market participants believe that risks are increasing, that is why the demand for currency is increasing and the rate is growing accordingly," she notes.
Factors impacting the dollar: forecast until the end of April
In general, most of the fundamental factors will now play into the hands of the hryvnia. Thus, Ukraine expects a heavier yield than in 2020, prices for agricultural products are quite stable, and prices for iron ore raw materials and steel products have been very high for more than half a year, Shapran explains, adding that the forecasts for the transfers of migrant workers to Ukraine are also good enough.
Netesanyi calls the following factors impacting the dollar:
- extension of the lockdown in Kyiv. This reduces business activity, suspends investment injections and, in general, negatively affects the country's economy, and that will indirectly adversely affect the exchange rate of the national currency;
- decrease in demand from non-residents for domestic government bonds. First of all, this is due to the fact that the country's risks have grown, and the rates of return on government bonds have decreased. Under such circumstances, domestic government bonds have become uninteresting for foreign investors. Most likely, this situation will last until the Q4 of 2021;
- the transition of the sowing season to the active phase. This is a positive factor, since it will increase the supply of foreign currency by farmers in the interbank foreign exchange market, and that will allow the hryvnia to compensate for some of the negative factors.
"Therefore, by the end of April, we expect the dollar in a narrow range of 27.8—28.3 UAH per dollar for a significant period of time with possible short fluctuations outside this corridor in the range of 27.5—28.5 UAH," the expert said. And economists of the Ukraine Economic Outlook expect the rate at the level of 27.8—28 UAH per dollar in the near future, namely until April 18."
Akhtyrko predicts that the assessment of the military aggression risk by market participants will remain the main factor. If it intensifies, then we can expect further growth of the rate, and if not, the rate may return to the level of the previous month.
Forecast of the euro and ruble exchange rate in Ukraine until the end of April and factors of impact
Traditionally, the euro exchange rate will depend on the situation in the international currency market and the euro/dollar quotes on it. According to Netesanyi, by the end of March, the euro in the narrow corridor should be expected in the range of $1.18—$1.20, and in the wide corridor—$1.17—$1.21. The ratio of the euro/hryvnia pair in the narrow corridor will be 33—34 UAH, and in the wide one—32.5—34.5 UAH per euro, respectively.
As for the ruble, its risks increase significantly. Thus, the main factors impacting the ruble exchange rate remain oil and gas prices, but despite the rise in prices, in particular for oil, the ruble has a tendency to depreciate.
«The ruble exchange rate also largely depends on geopolitical issues. Therefore, the main factors behind the weakening of the ruble today are geopolitical risks and rhetoric from the United States and other countries, as well as the escalation of tensions in eastern Ukraine. Thus, the ruble is falling against the dollar and the euro, despite high oil prices, and with the tightening of sanctions and the escalation of the situation in eastern Ukraine, the currency will fall even more in price. Therefore, we should expect the Russian ruble in a narrow corridor of 0.36—0.37, and in a wide corridor—0.35—0.38 hryvnia.»
Partner at Atlant Finance
Dollars and euros purchase in April-2021
The exchange rate for the dollar, euro, and ruble will be unprofitable until the end of April, the expert notes. According to him, the following levels can be a good guideline for buying currency in April: the dollar below 27.5 UAH, and the euro below 32.5 UAH. However, according to Akhtyrko, the current growth of the exchange rate is related to psychological rather than fundamental factors. So the probability of exchange rate fluctuations is high, and under such conditions, buying currency for a short period of time may be unprofitable.