- Locust invasion threatens Pakistan’s agricultural sector (2nd largest contributor to GDP)
- Cotton plants also vulnerable, threatening exports & weighing on Pakistan economic outlook
- Safe haven flows to US Dollar (USD) rise on North/ South Korea tensions & cooling US -Sino relations
- At 10:15 UTC, US Dollar to Pakistani Rupee (USD/PKR) trades +0.4% at 164.00
Growing concerns over the swarms of locusts spreading across Pakistan are weighing on demand for the Pakistan Rupee.
At 10:15 UTC, USD/PKR trades +0.4% at 164.00. This is at the upper end of the daily traded range 162.87 – 164.00.
The locust invasion in Pakistan is emerging to be a bigger threat to the Pakistan economy that the coronavirus outbreak, according to some analysts. The locusts threaten farm production and food security in a county where the agricultural sector accounts for 20% of economic activity, the second most important sector. The sector also provides a livelihood to half of the nation’s workforce.
According to the Ministry of Food Security and Research the locust invasion currently covers 57 million hectares in Pakistan, 23 million hectares of crop area. The Pakistani government is having to divert money away from the coronavirus crisis to combat the locust invasion.
The new cotton crop is particularly vulnerable. Cotton exports account for around 50% of Pakistan’s exports. Damage to these plants could weaken Pakistan’s outlook further. Pakistan’s economy is already set to contract for the first time in 678 years.
The US Dollar is pushing higher as risk sentiment eases. The US Dollar has been broadly out of favour across recent sessions as investors remained optimistic that the worst of the coronavirus crisis had passed. This dampened demand for safe haven currencies and assets whilst boosting demand for riskier assets.
Today, rising geopolitical tensions between North Korea and South has provoked a risk reset in the financial markets. North Korea has cut off communication with the South following the distribution of anti-regime leaflets.
In addition to Korean tension, US – Chinese tensions continue to simmer in the background, with President Trump’s intentions to sign Uyghur human rights bill adding to tensions.
Investors are now looking ahead to the Federal Reserve monetary policy announcement tomorrow. The Fed will need to strike a balance between applauding the encouraging US jobs data with reassurance that it won’t alter its lower for longer interest rate policy.
