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The Fijian Dollar: Trading Trends

The Fijian Dollar: Trading Trends
Shoran Devi
September 16
11:00 2017

The exchange rate is the price of one national currency, such as the Fijian dollar, expressed in terms of another currency, for example, the US dollar.

Exchange rate regimes (or systems) are the framework under which that price is determined.

An exchange rate regime is a system that a country’s monetary authority – usually the Reserve Bank of Fiji, adopts to establish the exchange rate of its own currency against other currencies.

In a fixed system, exchange rates are either held constant or allowed to fluctuate only within very narrow boundaries.

In this system of currency pricing, the Reserve Banks play an integral role in maintaining a currency’s value.

In a floating exchange rate system, exchange rate values are determined by the market forces of demand and supply and as such the exchange rate adjusts on a continual basis.

The weight of each currency in the basket is determined by its importance to Fiji’s trade in goods and services.

When the value of the Fijian dollar increases relative to other currencies, we say that the Fijian dollar has strengthened or appreciated. Alternatively, when the value of our dollar declines, we say that the Fijian dollar has weakened or depreciated against other currencies. Movements in the Fijian dollar reflect the movements in the major currencies in our basket in the international currency market.

Let us look at how our Fijian Dollar traded against the basket of currencies it is pegged to, for the past six weeks, on a Simple Moving Average basis.

 

US dollar

After a strong appreciation in the final quarter of 2016, the US dollar has gone back on the decline trend against most currencies since the start of 2017.

This led to emerging currencies appreciate sharply by taking advantage of the US dollar’s bout of weakness which was of course due to a variety of factors.

The US dollar was mainly affected by the unsettled US equity market owing to geopolitical tensions, the struggles of the Donald Trump administration and US government’s fiscal policy stance which generally disappointed market watchers.

On the Simple Moving Average basis, our Fijian dollar had also gained a bit of impetus against the US dollar and strengthened further in August.

 

AUD and NZD

The Australian dollar saw slight appreciationas it was mainly affected by changes in expectations for monetary policy in Australia and the United States.

Also, the GDP growth in the March quarter was stronger than expected for the Australian economy hence, the positive economic outlook further added to the strengthening momentum of the Aussie dollar.

Low global interest rates, and the positive outlook for the New Zealand economy relative to several other advanced economies, have reinforced investor confidence for New Zealand dollar assets over recent past, and so contributing to the average strengthening of New Zealand dollar exchange rate.

The strengthening of Kiwi was also partly driven by weakening US dollar.

 

JPY and EURO

On an annual moving average basis, the Fijian dollar largely appreciated against the Euro and the Japanese Yen (JPY).

The weakening trend of JPY was largely owing to the disappointing economic growth in the second quarter which was much slower than expected.

For the European economy, despite an accelerating growth and a steadily declining unemployment, inflation has been slow in converging towards the European Central Bank’s (ECB) target rate and as the political season in Europe continues, so does investor uncertainty.

The strengthening local currency means good news for our local importers as they have to pay less Fijian dollar for their foreign currency priced invoices or receive a bit

more foreign currency notes against Fijian dollar when travelling abroad.

Conversely, a strong local currency is not really favourable to those receiving overseas inward remittances from their friends or relatives abroad.

Also, stronger Fijian dollar would make our exports become expensive to the overseas buyers and hence may hurt the competitiveness of our export commodities in international markets.

For an open economy like ours, which is heavily dependent on trade,the external value of the currency is particularly relevant as it affects, among other things, the prices and the volume of goods and services we export and import.

Because Fiji pegs its exchange rate to a basket of currencies, there are simultaneous upward and downward movements in the value of the Fijian dollar in the short term.

As we strengthen against one currency, we also weaken against others.

However, over the long term, our currency has remained relatively stable against the currency basket. Source: HFC

Feedback: maraia.vula@fijisun.com.fj

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