Foreign exchange liquidity, kina performed well in last six months: BSP

FOREIGN exchange (FX) liquidity and the kina performed well in the final quarter of 2021, with strong commodity prices supporting the FX market turnover’s rise by 9.8 per cent over the past six months, according to Bank South Pacific Financial Group Ltd (BSP).
The bank stated in its Economic and Market Insight fourth quarter report last year that strong commodity prices in crude oil, copper, palm oil and coffee had supported an increase in FX market turnover.
Loose monetary policy in the US drove a continued uplift in the US dollar and by extension the kina and Australian dollar, through most of the quarter.
Inflation, Coronavirus (Covid-19) and monetary policy are the major trend drivers.
BSP Financial Group general manager treasury Rohan George, in highlighting the market performance, said the Kina had been stable and unchanged against the US dollar at 0.2850 for the past 14 months.
“However the pullback in the Australian and US dollars, amid Covid-19 related weakness in the Australian economy and strengthening in the US economy helped strengthen the kina and Australian dollar,” George said.
“The kina is likely to remain stable against the US dollar, while a steady Australian dollar will see improved stability in the kina/Australian dollar cross rate.”
In terms of outlook for the coming quarter, George said the strong FX inflows in last December were expected to taper in the first quarter of this year.
December FX inflows have substantially reduced outstanding FX orders from high levels seen in November, and this is expected to reverse in January, February with post-Christmas restocking.
“With market turnover dropping, and outstanding FX orders expected to rise in the first quarter of the year, corporate and retail customers can manage the volatility in foreign currency inflows by placing FX orders (with correct documentation), as soon as possible and ensure orders are cash backed whilst awaiting execution, tax clearance certificates are current and reflect the expected FX order execution time.”