UAE dirham at 5-year high on exchange shift expectations

The United Arab Emirates dollar-pegged dirham(AED) hit a fresh five-year high as Gulf currencies extended gains. Investors are betting that some Gulf Arab states could abandon fixed-exchange rates. The dirham touched 3.6675 per dollar, its strongest since November 2002. The central bank has fixed the dirham at 3.6725 per dollar since 1997.
The currency has been rallying since UAE Central Bank Governor said last week he could track a basket of currencies in concert with Saudi Arabia and three oil producers preparing for monetary union as early as 2010. Investors are betting on as much as a 2.7 percent appreciation in the Saudi riyal (SARF) and a 3.1 percent appreciation in the UAE dirham (AED) in a year, according to forward rates. Nine-month forward rates in both currencies also widened.