USD Currency in the Saudi Financial Market: Analysis and Impact on Stocks

The USD, or US dollar, is the official currency of the United States and one of the most important currencies globally. In the Saudi context, the dollar holds exceptional importance as it is the reference currency to which the Saudi Riyal is officially pegged. Since the mid-1980s, the Saudi central bank (SAMA) has committed to maintaining the exchange rate at 3.75 Riyals per dollar. This peg provides significant stability to the Saudi economy and limits sharp fluctuations in exchange rates that could affect trade, investment, and the prices of goods and services. Furthermore, the pricing of oil exports, which is the primary source of national income, is based on the dollar. The Kingdom also holds a significant portion of its reserves in US currency, which supports confidence in the local currency. Most international banking transactions, financing, and remittances are conducted in dollars, making the USD a cornerstone in shaping the Kingdom's financial and monetary policies.

The exchange rate of the Saudi Riyal against the US dollar has been fixed at 3.75 Riyals per dollar since the 1980s. This peg aims to achieve monetary stability and provide a reliable investment environment, as fluctuations in exchange rates reduce risks for companies and investors. The Saudi central bank (SAMA) manages this peg through precise policies and substantial foreign currency reserves, allowing it to intervene when necessary to absorb any pressures on the Riyal. For the Saudi financial market (Tadawul), this peg maintains stock price stability and facilitates foreign investment, as international investors can expect returns without currency risk. Additionally, the peg ensures stable import costs for essential goods and prevents imported inflation, which is vital in an economy reliant on imported products and major projects.

During 2024 and 2025, the Saudi central bank reaffirmed its commitment to the peg of the Riyal to the dollar. The official rate remained stable at 3.75 Riyals per dollar, despite slight fluctuations in the forward exchange market due to global factors such as changes in US interest rates or speculative waves. SAMA has repeatedly announced that it holds foreign reserves exceeding $480 billion by the end of 2023 and the beginning of 2024, providing a strong cash buffer against any pressures on the currency. Official exchange rates in most transactions of Saudi banks and financial institutions remained unchanged, and confidence in the local currency continued due to the strength of reserves and the cautious policies of the central bank. This stability positively reflected on all economic sectors, including the Tadawul market, where investor confidence was not affected by global dollar fluctuations.

US interest rates saw a significant increase by the end of 2023 and the beginning of 2024, ranging between 5% and 5.25%. This increase was part of the US Federal Reserve's efforts to combat global inflation. Saudi banks typically follow the Fed's lead in monetary policy, but with some differences reflecting the uniqueness of the local economy and government support for economic activity. This led to an increase in the gap between local and global interest rates, with Saudi rates remaining slightly lower, maintaining liquidity flow and supporting borrowing in Riyals. In the Saudi financial market, this resulted in continued demand for local stocks, with investors keen to benefit from currency stability and relatively lower borrowing costs compared to the dollar. Monitoring US interest rates remains a priority for decision-makers and Saudi investors to understand their implications on financing costs and investment returns.

Foreign reserves play a pivotal role in supporting the stability of the Saudi Riyal and its peg to the US dollar. By early 2024, the Kingdom's international reserves reached approximately $482-485 billion, a historically high level that provides a cash buffer enabling the central bank to intervene promptly when needed. These reserves include foreign currencies, gold, and various financial instruments, granting the Kingdom the ability to finance imports and withstand global economic pressures. In cases of market volatility or oil shocks, SAMA can utilize its reserves to ensure the stability of the Riyal, positively reflecting on the confidence of both local and international investors. Additionally, these reserves enhance the Kingdom's ability to issue international bonds and attract foreign investments, maintaining stability in the banking sector and the Saudi financial markets.

Some banks and financial institutions in the Saudi market have begun offering services for trading Saudi stocks in US dollars, particularly for foreign investors. This move aims to facilitate the entry of foreign capital and enhance liquidity in the local market. Practically, this allows international investors to purchase shares of listed companies like Hail Cement (3001) through dollar accounts, with the possibility of settling financial transactions directly without the need for currency conversion. However, most major transactions remain in Saudi Riyals, and the pricing of stocks in dollars is subject to a special settlement system with the central bank to mitigate currency fluctuation risks. This trend is seen as an important step towards deepening the Saudi financial market and increasing its attractiveness for global investment, but it requires careful oversight from regulatory authorities to ensure transparency and price stability.

The Saudi cement sector is one of the largest industrial sectors, with total production capacity reaching approximately 80 million tons annually by 2025. This sector primarily relies on local demand associated with major infrastructure projects and Vision 2030 initiatives. Although most production inputs are local, any change in the dollar's price may affect the costs of importing some auxiliary materials or equipment that are purchased in dollars. Additionally, cement companies benefit from exchange rate stability in long-term contracts and ensure more accurate profit forecasts. Competition remains strong among companies, with varying competitive advantages based on geographic location, production capacity, and cost efficiency. A rise in the global US dollar may increase the cost of importing certain materials, but the fixed peg of the Riyal reduces the impact of these changes on the local market.

Hail Cement Company (3001) is relatively small within the Saudi cement sector, with a market value of approximately 435 million Saudi Riyals by the end of 2025. The stock price ranged between 60 and 75 Riyals during 2024, stabilizing around 70 Riyals per share by the end of 2025. The price-to-earnings ratio ranges between 8 and 10 times, which is moderate compared to the sector average. The company did not adopt a regular cash distribution policy during 2024 and 2025 but opted to distribute 15% free shares to increase capital. Given the Riyal's peg to the dollar, the company benefits from currency stability in pricing its inputs and budgeting, while its costs are only affected if the prices of imported production inputs rise in dollars. The company's performance remains linked to local demand and infrastructure projects in northern Saudi Arabia, with continuous monitoring of dollar fluctuations in the global market to assess risks.

Hail Cement competes with several large and medium-sized companies in the Saudi cement sector. Major competitors include Yamama Cement (3040), Southern Cement (3039), Qassim Cement (1116), and Arabian Cement (7007). Hail Cement is distinguished by its geographic location covering the northern and northwestern regions, giving it an advantage in reducing transportation costs for local projects. In contrast, some competing companies have larger production capacities and greater flexibility in pricing their products. Hail Cement's performance depends on its ability to improve operational efficiency and keep pace with local demand developments. Despite a relative saturation in the market, opportunities remain to benefit from Vision 2030 projects and government initiatives. The stability of the dollar and Riyal provides the company with an advantage in cost control, especially when compared to companies in markets suffering from currency fluctuations.

The Vision 2030 projects play a pivotal role in stimulating demand for cement and construction materials. With the launch of major projects like NEOM and Qiddiya, the demand for cement is significantly increasing, providing opportunities for companies like Hail Cement to expand their operations and increase sales. Since most of these projects are financed in dollars or through international partnerships, the stability of the Riyal against the dollar ensures stable financing costs and long-term contracts. Additionally, increased government spending on infrastructure drives growth in the sector and creates a more stable environment for investors. At the same time, monitoring global dollar prices remains important, as any significant changes may affect the cost of imported materials and final product prices.

Despite the fixed exchange rate of the Riyal against the dollar, hedging against global dollar fluctuations remains essential for investors and Saudi companies. Banks and institutions use financial instruments such as futures contracts and hedging contracts to ensure stable returns and avoid risks associated with international dollar price changes. For companies that rely on importing raw materials or have international debts in dollars, financial hedging is an effective means of controlling costs and protecting profits. The Saudi market may experience slight fluctuations in the unofficial exchange market due to speculation or global economic expectations, necessitating risk managers to monitor the market regularly and update their hedging strategies.

In January 2024, the Saudi central bank (SAMA) reaffirmed its full commitment to maintaining the exchange rate of the Riyal at 3.75 Riyals per dollar, supported by substantial foreign currency reserves. This assurance came after slight fluctuations in the forward market for the Riyal, where the central bank reassured investors of the continued peg and no intention to change the current monetary system. SAMA also launched several measures to increase transparency in the exchange market and support banking liquidity, enhancing the confidence of both local and international investors. This stability allows the Saudi financial system to deal with global challenges without being affected by sudden dollar fluctuations, enabling companies to plan long-term financial strategies with confidence.

The stability of the dollar's exchange rate against the Riyal is closely linked to inflation levels and import prices in Saudi Arabia. Since most essential goods and raw materials are imported in dollars, the stability of the exchange rate limits the impact of imported inflation and protects consumers and businesses from rising living costs. Furthermore, currency stability contributes to ensuring stable prices for local products reliant on imported materials, preventing sudden price increases due to dollar fluctuations. If the dollar rises globally, the cost of imports may increase, but the official peg of the Riyal prevents sharp jumps in local prices, distinguishing the Saudi economy from many emerging economies.

To monitor the dollar's performance and its impact on the Saudi market, various sources can be referenced, such as the Saudi central bank (SAMA) website, the Saudi Capital Market Authority (Tadawul), and specialized economic websites like "Argaam" and "Economy of the Middle East." These sources provide periodic reports on foreign reserves, exchange rates, market indicators, and news about listed companies like Hail Cement (3001). Additionally, monitoring global dollar indices (such as the DXY index) and movements in US interest rates through international economic news platforms like Bloomberg and Reuters is crucial. Regularly reviewing these sources is essential for understanding market changes and making informed investment decisions based on accurate and reliable information.