Dollar in the Saudi Financial Market: Impact and Analysis

The US dollar is the most traded currency in the world and is recognized as the primary pricing standard for strategic commodities such as oil and metals. In Saudi Arabia, the currency plays a central role at several levels. Firstly, the Saudi riyal has been pegged to the US dollar at a fixed exchange rate since 1986, providing stability in prices and reducing fluctuations in the local currency. This peg makes all international transactions for the government and Saudi companies—especially those related to oil exports—priced in dollars, establishing the dollar as a primary reference in accounting and investment evaluations.

Secondly, the Saudi Central Bank (Saudi Arabian Monetary Authority - SAMA) holds a significant portion of its cash reserves in dollars or dollar-denominated assets, enhancing the Kingdom's ability to withstand any monetary shocks or fluctuations in global markets. Thirdly, the dollar is used to price international bonds issued by the government or Saudi companies, granting them access to global financing markets on more competitive terms. Finally, the dollar serves as a stability indicator for local and international investors, allowing them to measure risks and assess returns according to known global standards.

The peg of the Saudi riyal to the dollar is one of the pillars of Saudi monetary policy. This peg officially began in the mid-1980s, with the exchange rate fixed at approximately 3.75 riyals to the dollar. The aim of this measure was to achieve economic and monetary stability amid fluctuations in global oil prices and rapid changes in the global economy.

The Saudi Arabian Monetary Authority (SAMA) manages this peg through continuous intervention in the foreign exchange market by buying and selling dollars to maintain the set price. SAMA also aligns with US monetary policy decisions, particularly regarding interest rates, to avoid significant discrepancies that could attract speculative capital or lead to capital flight from the local market. This harmony in policies positively reflects on price stability and makes the Saudi market attractive to investors seeking lower risks in emerging markets.

Saudi monetary policies are directly affected by changes in US monetary policy. When the US Federal Reserve raises interest rates, the Saudi Arabian Monetary Authority often follows suit or closely aligns to maintain the stability of the peg between the riyal and the dollar. This affects borrowing costs within the Kingdom and leads to changes in consumer and business behavior.

In 2024 and 2025, US interest rates remained between 5.25% and 5.5% for an extended period, prompting SAMA to maintain similar rates to avoid unwanted capital flows. All of this imposes a limited margin of maneuver on Saudi monetary policy, as it must align with global changes without harming the local economy. The impact is also evident in the Saudi bond market, where yields on Saudi government bonds follow the movements of their American counterparts, attracting international investors seeking stable returns in a stable currency environment.

Since most of Saudi Arabia's exports, especially oil, are priced in dollars, any change in the value of the dollar directly affects government revenues. If the dollar strengthens against other global currencies, the purchasing power of oil revenues increases when converted to riyals or other local currencies. Conversely, a decline in the dollar erodes part of the real value of these revenues when measured in foreign currencies.

Regarding investment, the dollar is the reference currency when issuing international bonds or evaluating investments by Saudi sovereign wealth funds. Additionally, foreign investors view the stability of the riyal against the dollar as a motivating factor for entering the Saudi market, as they can easily convert their profits without worrying about exchange rate fluctuations. Finally, Saudi Arabia imports many capital goods and raw materials in dollars, making the cost of these inputs closely tied to the strength of the dollar globally.

The US Dollar Index (DXY) is a tool that measures the strength of the dollar against a basket of major currencies worldwide, such as the euro, yen, and British pound. This index is used by investors and analysts to assess the strength or weakness of the dollar on a global scale.

In Saudi Arabia, the Dollar Index does not directly affect the exchange rate of the riyal due to the fixed peg, but it indirectly impacts international trade and the prices of imported and exported goods. When the Dollar Index rises, dollar-denominated goods become more expensive for other countries, which may affect the competitiveness of Saudi exports. Additionally, a rising Dollar Index lowers the value of other currencies, potentially leading to changes in capital flows between emerging and developed markets. Therefore, monitoring the Dollar Index is one of the important tools for understanding the dynamics of the Saudi market within the global context.

Oil is the most important commodity in the Saudi economy and is priced globally in US dollars. For this reason, the Saudi economy is directly affected by fluctuations in the global price of the dollar. When the dollar rises against other currencies, the demand for oil decreases relatively because importing countries need to pay more in their local currencies. Conversely, if the dollar declines, oil prices become cheaper relatively for international buyers, which may increase demand.

On the other hand, a strong dollar means that Saudi Arabia receives strong revenues when converting oil revenues into riyals, supporting the government budget and enhancing the state's ability to invest. In recent years, the stability of the dollar and the growth in global demand for oil have contributed to supporting large developmental projects in the Kingdom, positively impacting the industrial and construction sectors, including cement companies.

The Saudi cement sector is one of the vital industrial sectors, serving construction and urban development projects across the Kingdom. The sector is characterized by a large number of companies competing to provide various types of cement, heavily relying on local demand resulting from infrastructure and housing projects.

The dollar affects this sector in multiple ways. Firstly, part of the production inputs—such as heavy equipment, spare parts, and imported raw materials—is purchased in dollars, making operating costs sensitive to any changes in the global dollar price. Secondly, the stability of the peg between the riyal and the dollar reduces cost fluctuations and provides companies with flexibility in financial planning. Finally, large government projects, often funded by oil revenues priced in dollars, are the primary driver of demand for cement in the Kingdom.

Hail Cement Company is one of the prominent companies in the Saudi cement sector, established to meet the cement needs of the Hail region. The company is listed on the Saudi financial market (Tadawul) under the symbol 3001 and focuses on manufacturing and distributing various types of Portland cement.

Financially, the price of Hail Cement stock was approximately $11.6 (43.5 Saudi riyals) in mid-2023. The company's market capitalization was around $1.14 billion (4.28 billion riyals) before completing the acquisition by Qassim Cement Company in June 2024 for $378 million (1.42 billion riyals). The company has not been consistent in distributing dividends, maintaining a distribution yield of less than 2% annually. The price-to-earnings ratio ranged between 20 and 30 in recent years due to fluctuating profits and sector challenges. Following the acquisition, Hail Cement's results were included in the financial statements of Qassim Cement Company, and its valuation became part of the new entity.

The impact of the dollar on Hail Cement Company and other Saudi cement companies is evident in several aspects. Firstly, any change in the global value of the dollar reflects on the import costs of production equipment and spare parts, thus affecting profit margins. When the dollar is strong, operating costs may rise if cement selling prices do not change locally at the same pace. Secondly, most major government projects—which represent the backbone of cement demand—rely on financing denominated in dollars or from oil revenues, meaning that dollar stability supports sector growth.

As for Hail Cement stock (3001), its financial performance has fluctuated in recent years due to intense competition in the sector and rising costs, prompting the company to focus on improving efficiency rather than distributing profits. The acquisition deal completed in 2024 reflects the trend towards mergers to enhance market power and reduce competition, also supported by the stability of dollar revenues in the Saudi economy.

The Saudi cement sector is witnessing fierce competition among several companies, most notably Qassim Cement, Eastern Cement, Yamama Cement, and Madinah Cement, in addition to smaller companies like Tabuk Cement and Najran Cement. The market is characterized by close pricing of products due to government price controls, making cost management a critical factor for competitiveness.

The dollar plays a pivotal role in this competition as it affects the import costs of inputs not available locally. Additionally, any significant change in the global dollar price may lead to repricing of some materials or restructuring contracts with foreign suppliers. In recent years, the sector has seen mergers and acquisitions to reduce excessive competitiveness and enhance efficiency, as evidenced by Qassim Cement's acquisition of Hail Cement. The stability of the dollar and the riyal provides companies with a relatively stable working environment, but it does not eliminate the fundamental market challenges related to supply saturation and occasional demand slowdowns.

During 2024 and 2025, the Saudi riyal continued its fixed peg to the dollar without changes in the official exchange rate. Global markets witnessed relative stability in US monetary policies, with expectations of gradual easing of interest rates after periods of financial tightening. The US Dollar Index remained around 105 points, providing stability in emerging markets, including Saudi Arabia.

In the local market, oil prices rose to levels between $80 and $90 per barrel, boosting government revenues. This was reflected in the cement sector through increased demand for construction materials, with sector profits rising to 2 billion riyals in the first nine months of 2024. On the other hand, inflation rates in Saudi Arabia remained moderate at below 3%, compared to higher rates in global markets, contributing to the stability of purchasing power and supporting the stability of local financial assets.

Major development projects such as NEOM, Qiddiya, and the expansion of the Two Holy Mosques play a fundamental role in driving the Saudi economy. These projects rely on financing from dollar-denominated oil revenues, and many contracts with foreign companies and suppliers are priced in dollars. The stability of the dollar against the riyal allows the government to plan long-term without worrying about exchange rate fluctuations.

For cement companies, this means that demand for their products will remain stable as long as government projects continue to spend. Additionally, dollar stability reduces the risks of cost inflation resulting from changes in the prices of imported inputs. Thus, the continuity of the peg between the riyal and the dollar remains a cornerstone of the success of Saudi development plans in the long term.

Despite the significant benefits that Saudi Arabia has gained from pegging the riyal to the dollar, future challenges loom on the horizon. Among the most prominent is the possibility of changes in global monetary policies or shifts in investor preferences towards other assets, which could affect capital flows. Discussions sometimes arise about the potential to diversify Saudi cash reserves to include gold or a basket of currencies, especially amid rising geopolitical tensions or changes in the global economic balance of power.

As of mid-2025, there has been no official change in the peg policy, and there are no strong indications of a near-term direction to amend it. However, the Saudi Monetary Authority continues to monitor international developments and is prepared to respond to any changes that market conditions may impose. Monetary stability remains a central goal, supported by Saudi Vision 2030, which prioritizes financial stability.

Local and international investors use the movement of the dollar as a key indicator to assess risks and opportunities in the Saudi market. When the dollar is strong and stable, investors feel more confident in the Saudi market due to the stability of the riyal and the absence of currency fluctuation risks. This supports the flow of foreign capital into the Saudi stock market, especially in sectors linked to government spending or strategic projects.

Conversely, if signs of weakness or fluctuations in the dollar appear, investors may reassess their positions, especially if this coincides with changes in US interest rates or global economic pressures. Therefore, monitoring dollar developments remains an indispensable tool for understanding the dynamics of the Saudi market and identifying investment and financing trends.

Although the official exchange rate of the riyal against the dollar is fixed, monitoring the movement of the dollar globally remains essential for understanding the economic environment in the Kingdom. The dollar can be tracked through the US Dollar Index (DXY), in addition to interest and inflation reports issued by the US Federal Reserve.

Locally, the Saudi Arabian Monetary Authority publishes periodic reports on monetary and financial conditions, outlining the size of foreign reserves and liquidity levels. Additionally, quarterly reports from companies listed on the Saudi financial market provide data on the impact of dollar changes on profits and costs. With these tools, investors and interested parties can monitor the impact of the dollar on the Saudi economy and make informed financial decisions in collaboration with specialized advisors.