Saudi Arabia to hold dollar peg in coming years: BofAML

Saudi Arabia is expected to maintain its dollar peg for years to come even in a tail-risk scenario, Bank of America Merrill Lynch (BofAML) said in a report on Sunday.

“The USD/SAR points have come in a lot: for example, 12-month is now at 180 vs 600 in Nov’16 when Brent was $10 lower than today,” the report noted.

The bank picked USD/SAR forwards among its choice of cross-hedge assets, adding that it expects the forwards to “certainly move.”

“While we continue to be structurally bullish on emerging markets, the risks from the Eurozone and the US tax debate warrant buying some low-cost tail risk hedges for March/April,” it said.

The bank also noted that Brent crude oil is likely to be down about $10 on a 20 percent Border Adjustment Tax (BAT) in March and April, and the supply shock is expected to exacerbate the impact on producers.