Summary on Trade Partner Currency Performance for April
The impact of travel restrictions showed in official data for international trade, with both exports and imports falling sharply by four per cent and five per cent, respectively, in February. As a result, Australia’s trade balance narrowed to AUD$4.36 bil
Exchange rate plays an important role in any economy whether small or big. Exchange rate is the price of one currency against another.
There are various factors that influence movements in exchange rate.
In addition, there are exchange rate regimes.
While there has been some sharp movements in exchange rate of the Fiji dollar against the basket currencies over the month due to the volatility in the global market, it is our view that the Fiji dollar will remain steady over the medium term.
In addition, with foreign reserves at $2.2 billion and measures put in place to protect our external position, we do not see any exchange rate adjustment or intervention by the RBF.
International economic performance, including our larger counterparts, have gained a lot of attention over the weeks. In the foreign exchange market, the economic performance of countries are observed carefully to draw conclusions on the trading pattern of that country’s currency. News and information from these economies can have a direct impact on the direction that the country’s currency is heading.
Let us have a look at how our major trade counterpart economies performed over the month of April and how they affected our import forex rates.
USD
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The Fijian Dollar gained momentum against the US dollar since mid-March rising from 0.4142 to 0.4338.
Investors rushed to the security of the world’s most liquid currency as the coronavirus pandemic caused massive disruptions to global trade, treating the greenback as a safe-haven currency.
Protection measures
Protection measures from the coronavirus continued to tear through the employment ranks. A record 26 million Americans have sought unemployment benefits over the past month.
This wiped out all the job gains since the great recession and highlighting the toll on the economy from extraordinary containment measures for COVID-19.
The 26 million people who have filed claims for jobless benefits since March 21, represents over 13 per cent of the US labour force. Mid-month, the US dollar held on to hefty gains against major currencies despite a coronavirusdriven plunge in US retail sales dropping by 8.7 per cent in March, the worst monthly decline on record. Americans are not buying much beyond food.
While retail trade fell overall, one category stood out: grocery store sales surges 26.7 per cent.
Industrial production fell 5.4 per cent, the steepest decline since 1946 due to the coronavirus pandemic.
The collapse was bigger than during the worst months of the Great Recession in 2007-2009.
Factories began shutting down in late March as the pandemic forced social distancing.
The market will keep a close eye on more US labour data later next week.
The unemployment rate is forecast at 14 per cent for Aril compared 4.4 per cent in March.
AUD
The Fijian dollar weakened against the Aussie dollar to 0.6794 from its highest level of 0.7051 at the beginning of the month.
In the first week of April, the Reserve Bank of Australia left interest rates unchanged and affirmed its current bond yields while warning the economy would be hit hard by the coronavirus pandemic in the second quarter.
The official cash rate remained at a record low of 0.25 per cent while the central bank launched a massive bond program to cushion the economy from the impact of the pandemic.
Last month, the cash rate was reduced twice by a combined 0.5 per cent.
Impact of travel restrictions
The impact of travel restrictions showed in official data for international trade, with both exports and imports falling sharply by four per cent and five per cent, respectively, in February.
As a result, Australia’s trade balance narrowed to AUD$4.36 billion (FJ$6.38 million) with earnings from tourism sliding 15 per cent in the same month by AUD$1billion (FJ$1.47billion) in just two months.
By mid-April, the Aussie traded close to 0.6800.
Australia released positive labour data for March; however, this covered the first two weeks of the month before measures were taken to contain the spread of the coronavirus.
Employment rate
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Employment rose to 5900 against a forecast drop of 40,000 while the unemployment rate rose to 5.2 per cent when compared to 5.1 per cent the previous month.
Labour figures gave a preview of the pain to come in the labour market as whole sections of the economy shut down.
Economists fear unemployment could spike toward 10 per cent in the coming months, heights not seen since the last major recession in Australia in the early 1990s. Australian consumer confidence recorded its biggest drop of 17.7 per cent in the 47-year history of the survey.
The survey released came at the time the coronavirus had spread in Australia from less than 100 cases last month to around 6,500 cases, killing 62 Australians.
Next week, the Reserve Bank of Australia will make an announcement on their official cash rate which is forecast to remain at 0.25 per cent.
If the rates are cut further, this could have a negative impact on the Aussie Dollar.
Meanwhile, the International Monetary Fund forecasts a 6.7 per cent economic contraction this year, the deepest recession in Australia’s history, followed by a 6.1 per cent expansion in 2021.
NZD
The Fijian Dollar traded against the Kiwi Dollar as high as 73 cents in March, only to weaken to 71 cents at the beginning of this month.
New Zealand business confidence fell sharply in the first quarter as firms expected the coronavirus outbreak to reduce demand for their products and affect broader economic activity.
70 per cent of firms surveyed expected general business conditions to deteriorate as compared with 21 per cemt in the previous quarter. This survey closed prior to the New Zealand government announcing the nationwide lockdown on March 20th.
Dairy production
Dairy product prices rose, advancing for the first time since January and bolstering optimism about the outlook for demand.
The global price index rose 1.2 per cent from the previous release. The per centage rise was good news for New Zealand as Dairy products are its major export commodity.
The governor of the Reserve Bank of New Zealand stated negative interest rates are not off the table in its response to the economic fallout of the coronavirus crisis.
Last month, the Kiwi central bank cut its official cash rate to 0.25 per cent in its response to the pandemic.
After the Easter weekend, the Fiji Dollar strengthened to over NZD$0.72 (FJ$0.98), only to weaken after positive CPI data was released.
NZ consumer price
New Zealand’s consumer price index rose 0.8 per cent for the first quarter influenced by rising prices for cigarettes and residential rents. Annual inflation was 2.5 per cent, the highest since the September 2011 quarter when it was 4.6 per cent.
This was driven by domestic inflation, which remains above three per cent.
Employment figures will be released next week and it will be interesting to see what impact the coronavirus pandemic and lockdown has on the labour market. The kiwi unemployment rate is forecast at 4.2 per cent.
JPY
Since the beginning of April, the Fijian Dollar remained steady against the safe-haven currency trading within range of close to 45 and 46 yen.
Supply chain disruptions, travel bans and social distancing policies triggered by the pandemic have hit Japan’s economy, which is already on the brink of recession, piling pressure on policymakers to take stronger steps to ease the pain.
Japan boosted its new economic stimulus early this week to a record $1.1 trillion (FJ$0.02 trillion) to expand cash payouts to its citizens as the fallout from the coronavirus pandemic threatens to push the world’s third-largest economy deeper into recession.
Every citizen is expected to receive a payment of 100,000 yen (FJ$2,108.99) each instead of 300,000 (FJ$ 6,326.97 ) yen for a limited number of households with sharp drops in income.
House hold spending
Meanwhile, data released earlier in the month showed that household spending increased by 0.8 per cent in February, the first increase since a sales tax hike was imposed in October.
Industrial production, which measures the total output produced by manufactures, mines and utilities, declined 0.3 per cent.
The Bank of Japan will announce its interest rate decision early in May.
The current interest rate stands at -0.10 per cent which has remained unchanged since January 2016.
EUR
At the beginning of the month, economic data from Europe weakened and weighed on the single currency.
The Fijian dollar has since strengthened against the Euro from around 0.3900 euro (FJ$ 0.95) to just over 0.4000 euro (FJ$0.97). Governments in the Euro zone unveiled unprecedented stimulus measures and the European Central Bank increased its asset purchase target for this year to around 1.1 trillion euros (FJ$2.68 trillion) to try and mitigate the fallout.
But with across the
Managers’
Indexes slumped to record lows in March and suggested it could be months before things returned to any semblance of normalcy.
The PMI index declined to 29.7 to a seven and a half year low as the Coronavirus fears continued to dominate.
By mid-April, the Fijian Dollar was trading at close to 0.4000 euro (FJ$0.97).
Purchase manager survey data for the manufacturing industry showed the Euro-zone contracting businesses shuttered region, Purchasing to 44.5 for the fourteenth straight month.
Industrial production
Industrial production dipped slightly by 0.1 per cent in February, the month before coronavirus restrictions were widely introduced in Europe.
Production rate
Among EU’s largest economies, production in Germany and France was higher in February than in January, although the rate of increase slowed.
The first quarter GDP data for the Eurozone will be released May.
Despite a forecast growth of 0.1 per cemnt, the market anticipates weaker figures given that the lockdowns in Europe began in late February.
A lower results will have a negative impact on the Euro. Understanding the economic development of our trade partner countries are much more imperative given the direct relation our Fiji Dollar has with our trade partner currencies.
Our Fijian Dollar operates on a pegged exchange rate regime which is fixed to a basket of currencies which are its major trading partners above.
Exchange rates
Exchange Rates have a powerful influence on trade and, therefore, prices and economic activity.
In Fiji’s case, exchange rates play an important role as we import much more than what we export. The Fijian Dollar has strengthened against its major trade partner currencies, except the Aussie Dollar, in the month of April.
It will be interesting to see what impact the Coronavirus Pandemic has on economic data for the months of March and April which will be released later this month.