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 percent over the past six (6) months.
According to BSP Financial Group Limited’s Pacific Economic and Market Insight Q4 report for 2021, strong commodity prices in Crude Oil, Copper, Palm Oil and Coffee have supported an increase in FX market turnover.
Loose Monetary Policy in the US drove a continued uplift in the US Dollars, and by extension the PNG Kina /Australian Dollars, through most of the quarter. Inflation, COVID-19, and Monetary Policy are the major trend drivers.
BSP Financial Group General Manager Treasury – Rohan George in highlighting the market performance said firmer commodity prices, combined with increased project specific, donor foreign currency inflows and end of year dividend payments, offset the lost FX market inflows from the closure of the Porgera Gold Mine - an FX inflow that was down by 75% for Barrick. April 2022 remains the targeted date for the Porgera Mine re-opening.
“The Kina has been stable and unchanged against the USD at 0.2850 for the past 14 months; however the pullback in the AUD/USD, amid COVID-19 related weakness in the Australian economy, strength in the U.S. economy helped strengthen the Kina/AUD. The Kina is likely to remain stable against the USD, while a steady AUD will see improved stability in the Kina/AUD cross rate,” Mr. George said.
In terms of outlook for the coming quarter, the BSP Treasurer said the very strong FX inflows in December 2021 are expected to taper in the March Quarter of 2022. 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,” Mr. George added.
Meanwhile Papua New Guinea’s commodity recovery remains steady as prices for major agricultural exports – Palm Oil and Coffee trended upwards in the last quarter of 2021, on both supply constraints and firm demand.
Gold and precious metals were trending downwards, constrained by a strong USD, rising interest rates and reduced gold purchases. Copper prices have notably cooled from November peaks, as central banks around the world begin to reign in pandemic-era stimulus programs.
Arabica Coffee prices continue to trend upwards, due to reduced coffee production from leading producer Brazil and rising global coffee demand while LNG continues its bull run as demand surged in Q4, due to the energy crisis in Europe and post COVID-19 supply chain disruptions.