Summary on Trade Partner Currency Performance for May
Movements in exchange rates
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 just over $2.2 billion and measures put in place to protect our external position, we do not see any exchange rate adjustment or intervention by the Reserve Bank of Fiji (RBF).
International economic performance, including our larger counterparts, have gained a lot of attention over the weeks.
In the foreign exchange market, a nation’s economic performance is monitored carefully to draw conclusions on the trading pattern of that country’s currency.
News and information from these economies can have a direct impact on the direction that the country’s currency is heading.
Let us have a look at how our major trade counterpart economies performed over the month of May and how they affected our import forex rates.
USD
The Fiji Dollar weakened against the US Dollar throughout the first week of May to as low as US$ 0.4344 (FJ$0.95)
However, after the U.S. released negative labour data due to the coronavirus pandemic, the Fiji dollar started the second week trading close to US$0.44 (FJ$0.97).
The impact of the coronavirus-induced economic shutdown tore through the U.S. labour market in April at historic levels, slashing 20.5 million workers from nonfarm payrolls and sending the unemployment rate skyrocketing to 14.7 per cent.
Personal consumption expenditure fell 7.5 per cent in March while personal saving rate jumped to 13.1 per cent during the report period to a 39-year high as the result of spending falling much faster than income.
U.S. consumer prices in April dropped by the most since the Great Recession, weighed down by a plunge in demand for gasoline and services, including airline travel, as people stayed home during the coronavirus crisis.
The consumer price index tumbled 0.8 per cent last month after falling 0.4 per cent last in March.
That was the largest decline since December 2008, and marked the second straight monthly decrease in the CPI.
The US unemployment rate for May will be released next week and is forecast to increase to 19.8 per cent.
AUD
At the beginning of May, the Fiji Dollar traded as high as AU$0.6785 (FJ$0.99) but weakened throughout the month to as low as AU$0.6670 (FJ$0.97).
The Reserve Bank of Australia (RBA) kept its official cash rate unchanged at the historic low of 0.25 per cent.
The RBA Board voted to keep the interest rate on hold after a reduction from 0.5 per cent to 0.25 per cent during an unscheduled meeting in mid-March because of the escalating coronavirus pandemic.
Australian retail sales rose
March; this followed a rise of
February 2020.
With panic-buying driving sales of essential items as Covid-19-induced lockdown took place, it was one for the history books.
Australia’s trade surplus increased to a new high as prices and volumes of commodities like iron ore surged, boosting the economy as it headed into the late-March lockdown.
The surplus spiked to a record AU$10.6 billion in March.
Business condition slid deeper into negative territory at -34 in April as sales, profit and employment suffered from the lockdown, however, business confidence rebounded slightly to -46, from March’s -66, but this provided little comfort given that it remains twice as weak as in the 1990s recession.
Australian jobs plunged by the most on record in April as employers laid off over 590,000 workers in response to the economy-wide shutdowns to curb the spread of the coronavirus.
This is largest fall on record. The unemployment rate shot up to 6.2 per cent, the highest since September 2015, from 5.2 per cent but lower than the 8.3 per cent in March.
A ban on beef imports from four large Australian meat processors by largest trading partner China also weighed on the market’s sentiment.
The suspension came as ties between the two countries soured over Canberra’s support for an inquiry into the coronavirus outbreak’s origin, although the Australian minister for trade denied the ban was retribution.
Next week, the RBA is forecast keep its official 8.5 percent in 0.6 per cent in rates unchanged at 0.25 per cent while there is a forecast rise in GDP by 0.3 per cent.
NZD
The Fiji Dollar was volatile against the New Zealand Dollar rising from NZ$0.7125 to FJ$0.7195 in the first week of May.
New Zealand’s jobless rate rose to 4.2 per cent in the first quarter ahead of a strict lockdown enforced to limit the spread of the coronavirus.
The figure was only slightly higher than a 4.0 per cent jobless rate in the previous quarter.
The data reflected the state of the labour market before the five-week alert level four lockdown, imposed in New Zealand to stem the spread of COVID-19.
The lockdown eased on April 28 but several restrictions are still in place across the country.
From mid-May, the Fiji Dollar traded at NZ$0.7108 (FJ$0.982) gaining strength to as high as NZ$0.7259 (FJ$0.996).
The Reserve Bank of New Zealand doubled the amount of bonds it would buy under its quantitative easing programme to NZ$60 billion (FJ$83 b) as it left its cash rate at a record low 0.25 per cent.
It also flagged a possible shift to negative interest rates, saying it had asked banks to be ready for the regime by year-end.
Retail card spending across the country fell more than $2.6 billion as non-essential businesses temporarily shut during the lockdown. Spending on vehicles, on eating out, and on accommodation away from home fell sharply in the March 2020 quarter in the lead up to the COVID-19 lockdown.
The volume of total retail sales fell 0.7 per cent in the March 2020 quarter, after a relatively flat December 2019 quarter.
This is the largest fall in total volume sales in eight years.
Next month, New Zealand will release data on building consents and retail card sales for April and May, respectively.
JPY
The
Fiji Dollar weakened against the Japanese
Yen at the beginning May to as low as JPY45.25 (FJ$0.93) and later rose above JPY46.55 (FJ 0.96).
Japanese households cut monthly spending by the most in five years as the coronavirus started to spread more quickly in the weeks before the government called a state of emergency.
Spending fell 6 per cent in March from a year earlier, dragged down by plunging outlays on entertainment and leisure.
Economists forecast an overall decline.
Spending has fallen six months straight, hit first by last year’s sales tax hike and now by the virus.
Japan, the world’s third largest economy, slipped into recession for the first time in five years as the coronavirus pandemic continues unabated.
Japanese gross domestic product shrank by an annualised rate of 3.4 per cent in the first quarter of 2020, on the heels of a 6.4 per cent annualised contraction in the last quarter of 2019.
Exports dived 21.9 per cent from a year earlier, the 17th consecutive month of decline and the steepest fall since a 23.2 per cent plunge in October 2009 in the wake of the global financial crisis.
Imports fell 7.2 per cent, down for the 12th month in a row.
As a result, the country recorded a goods trade deficit of JPY930.40 billion (FJ$19.25 b).
Consumer prices slipped into negative territory for the first time in more than 3 years due to the pandemic.
EURO
Fiji Dollar weakened against the Euro to as low as EUR 0.3983 (FJ 0.9823) but rose to as high as EUR 0.4072 (FJ$ 1.00).
Manufacturing activity in the euro zone collapsed last month as government-imposed lockdowns to stop the spread of the coronavirus, forced factories to close and consumers to stay indoors. Manufacturing
Purchasing Managers’ Index (PMI) for the euro zone sank to 33.4 from March’s 44.5; the lowest since the survey began in mid-1997.
The slump came despite the European Central Bank easing policy and ramping up its quantitative easing programme alongside unprecedented amounts of fiscal stimulus from governments to help an economy ravaged by the pandemic.
Retail sales in the euro zone suffered their largest decline on record in March.
Sales fell by 11.2 per cent in March from February and by 9.2 per cent year-on-year.
The year-on-year figure, which has not been negative since the end of 2013, was the worst on record in data reaching back to 2000.
It was also twice as large a decline as in February 2009, the worst month of the 2008-2009 financial crisis.
The consumer price index (CPI) for April fell below forecasts from 0.4 per cent to 0.3 per cent annually. The euro rose as the market ignored the weak inflation data from the Eurozone. Data released showed that the headline CPI rose by an annual rate of 0.3 per cent in April. Next week, the European Central Bank will release its unemployment rate which is forecast to increase from 7.4 per cent to 7.7 per cent for April.
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 Fiji Dollar operates on a pegged exchange rate regime, which is fixed to a basket of currencies that are its major trading partners.
These are the United States, Australia, New Zealand, Japan, and the Euro Zone.
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.
It will be interesting to see what further impact the Coronavirus Pandemic has on economic data for the months of April and May which will be released later this month.