BSP Insights: PNG FX Liquidity expected to continue growing into the half-year

Quarter one of 2022 Foreign Exchange (FX) market inflow momentum is expected to continue into the half-year, assisted by firmer commodity prices, end of half-year dividend flows and foreign aid, according to BSP Group General Manager – Treasury, Rohan George.

“As FX inflows can be lumpy, we expect there to be periods where outstanding FX orders build up.

“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,” Mr. George stated in the BSP Pacific Economic and Market Insight Q1 2022 Report.

He emphasised in the report that in the first quarter of 2022, FX  market turnover fell 2% from the strong December Quarter 2021, but rose 24% from March Quarter 2021 (12 months ago), supported by strong commodity prices, in particular Oil, Copper, Palm Oil, Coffee.

“Firmer commodity prices offset the lost FX market inflows from the closure of the Porgera Gold Mine (Barrick FX inflows down 75%), whilst the stronger commodity prices added to transportation and input costs of imported goods increased the volume of new FX orders placed post-Christmas,” Mr George added.

Meanwhile, the outstanding FX orders expectation of reopening the Porgera Gold Mine is also positive from foreign exchange perspective remained similar to levels seen 12 months ago.

“BPNG FX intervention rose 8% in 2022, reducing some of the outstanding FX order backlogs, but remains unchanged from March Quarter 2021.

“The Kina fell 10 basis points against the U.S. dollar to 0.2840 in 2022, the first movement for over 14 months. Stronger commodity prices, due to the invasion of Ukraine, strengthened the Australian dollar and saw the Kina fall to 0.36,” Mr. George further added.