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Foreign Exchange Market Inflows Gain Momentum in the June Quarter

Thursday, July 21, 2022

“Foreign Exchange (FX) market inflows gained momentum in June Quarter. FX inflows are expected to seasonally taper in September Quarter, and outstanding FX orders build-up again,” says BSP Group General Manager – Treasury, Rohan George.

“As FX flows can be lumpy, we expect there to be periods where outstanding FX orders build up,” said George.

According to the BSP Pacific and Economic Insight Quarter 2 report, Mr. George emphasised that, the FX market turnover in the June Quarter, rose by 16% from the March Quarter of 2022. Subsequently, FX market turnover was 20% higher than 12 months ago, supported by strong commodity prices in particular Oil, Copper, Palm Oil, and Coffee. These firmer commodity prices have offset the lost FX market inflows from the closure of the Porgera Gold Mine.

Meanwhile, the outstanding FX orders with BSP have fallen by 55% in the past three months, assisted by record June FX inflows, but remain similar to levels seen 12 months ago,” added George.

He said: “BPNG FX intervention in June rose to 260% from May and up 33% from the March Quarter, as global inflation increased FX foreign currency requirements of the Oil, Transportation, Food and other sectors.”

“BPNG increased the Kina Facility Rate (KFR) by 0.25%, and raised Cash Reserve Requirement (CRR) of commercial banks by 1%, tightening monetary policy to combat imported inflation. A move over time to pre Covid-19 monetary policy settings will see reduced liquidity, higher interest rates and reduced demand,” stressed George.

“Recessionary fears amid a tightening of monetary policy in Australia weakened the Australian dollar and saw Kina rise 10% to 0.3985 from March. The Kina remained stable against the U.S. dollar at 0.2840,” said George.

He added that, “Consequently, to manage volatility in foreign currency flows, businesses should place FX orders with correct documentation, as soon as possible, ensure orders are cash backed whilst awaiting execution, ensuring tax clearance certificates are current and reflect the expected FX order execution time,” he said.