Recent developments in the Middle East have raised concerns regarding the stability of the UAE Dirham (AED) against the Saudi Riyal (SAR). Analysts noted a decline in markets following Israel’s military actions in Iran, which has led to increased oil prices and heightened market volatility. This geopolitical tension may affect investor sentiment toward the AED, particularly as it is heavily tied to oil revenue.
On a more positive note, the Arab Monetary Fund forecasts a robust growth rate of 6.2% for the UAE economy in 2025, bolstered by a strong recovery in tourism, real estate, and international trade. Such growth may support the AED’s stability and resilience against currency fluctuations.
However, there are signs of internal challenges; recent reports indicate that growth in the UAE's non-oil private sector has slowed to its weakest pace in nearly four years, suggesting potential hurdles in the country’s diversification efforts. This could consequently weigh on the AED if sustained.
In terms of trade dynamics, the UAE's pursuit of a trade agreement with the U.S. to mitigate tariffs on steel and aluminum exports could positively impact trade balances, further influencing the AED positively in the long run. Additionally, significant investments in artificial intelligence to diversify the economy could enhance economic prospects.
The SAR's stability, pegged to the U.S. dollar at a fixed rate of 3.75 riyals, has shown resilience, although the AED to SAR exchange rate recently reached a 60-day low at 1.0209. This rate appears consistent with its three-month average, trading within a stable range of 0.6% from 1.0172 to 1.0230. Experts suggest that while geopolitical factors may create volatility, the underlying strength of the UAE economy may provide support for the AED in the medium term.
In summary, while the AED faces external geopolitical risks and internal economic challenges, forecasts remain cautiously optimistic as analysts observe potential growth drivers that could stabilize the currency against the SAR in the coming months.