The Jamaican dollar lost up to nearly half of its value against select emerging power currencies over 12 months even as the US dollar held firm over the period.

The Bank of Jamaica (BOJ) said it intervened to stabilise the US dollar but allowed market forces to determine other currency rates.

For instance, local currency fell 41 per cent against the Australian dollar and 30.6 per cent against the Brazilian Real.

Over the same period the Jamaican dollar lost only 1.6 per cent against both the US dollar ($87.90 — $89.33) and powerful Chinese yuan (J$12.87 – $13.08). All movements were compiled utilising Bank of Jamaica data.

Many of these economies are benefiting from commodity price increases in oil and gold which are strengthening their currencies. It has implications for local commerce as the Japanese yen–the currency of world’s second largest economy–is now on par with the Jamaican dollar, making its cars and cameras more expensive. The BOJ told the Business Observer that volatile local and international trading was affecting these exchange rates.

“It is a market activity that is independent of us (the BOJ). Activities in respect to certain commodities may have some minor influence from time to time but the real forces are the actual players in the market,” stated a senior spokesman at BOJ who requested anonymity to respect protocol.

There is some amount of “statistical unintentional manipulation” also at play, added the BOJ senior spokesman.

“Because its a smaller market for these (non-US) currencies and fewer players, it means that when one or two people execute trades those trades skew the market as large block trades can affect the average price,” the BOJ stated. “It is not so easy to skew the market with largely traded currencies.”

Trader Dino Hinds, however argued that these currency movements are not locally determined because they are not actively traded in the market.

“The local exchange rate for the other currencies in question are not set by local factors or by them being actively traded in the market,” Hinds, the assistant vice-president of Markets and Trading at Mayberry Investments told the Observer. “The rates are in fact set by the movements of the currencies against the US dollar [and] the local exchange rate set by taking that international cross rate and multiplying by the local US dollar rate.”

Hinds statement accounts for most of the movement, but not all because the Australian dollar appreciated more against the Jamaica counterpart than the US counterpart at 41 per cent versus 30 per cent respectively. The difference seems to relate to the “unintentional manipulation”. The BOJ is a net earner in those currencies as most of its business in conducted with US dollars, it stated.

The Business Observer sought comments from financial analysts Dennis Chung and Juvenne Yee but was unsuccessful up to print. Most local cambios only trade US, EURO and pound currencies, according to comments by dealers.

Since last month, the Jamaican economy had been infused with funds geared at increasing the stability of its currency and accounts. It received a US$1.2 billion ($107.4 billion) stand-by arrangement with the International Monetary Fund (IMF) last month, and an additional US$800 million ($71.6 billion) worth of multilateral loans — US$200 million from the World Bank US$200 million and US$600 million from the Inter-American Development Bank (IDB). A measure of the increased confidence was the stability of the dollar and the 330 basis point dip in the yield curve on Government of Jamaica Global Bonds so far in 2010.

In mid February, rating agency Fitch upgraded Jamaica’s long-term foreign and local currency ratings to “B-” from “CCC” and “C” respectively, with a stable outlook. Rating agency, Standard & Poors followed a week later, hiking its long-term foreign and local currency sovereign credit rating on Jamaica to “B-” from “SD” or “Selective Default” with a stable outlook. Then in March, rating agency Moody’s upgraded Jamaica’s local and foreign currency bond ratings to B3 from Caa1 on foreign currency and Caa2 on local currency, which it said reflected “diminished credit risks following the domestic debt exchange completed in February”. Jamaica had executed a voluntary debt swap, reached as a conditionality of the IMF agreement. The debt swap registered a participation rate of more than 99 per cent and will result in Government saving some $40 billion on interest cost payments in its first year — due to a reduction in interest rates and extension of debt maturities.

Over 52 weeks ending March 19, 2010 the:

*Australian dollar moved from J$58.20 to J$82.50 or 41 per cent;

*South African Rand moved from J$8.85 – J$12.22 or 38 per cent;

*Brazilian Real moved from J$38.20 – J$49.91 or 30.6 per cent;

*Indian Rupee moved from J$1.71 -J$1.91 or 14.6 per cent;

*Swiss Franc moved from J$75.43 – J$84.02 or 11.3 per cent; and

*Japanese Yen moved from J$0.89 – J$0.98 or 10 per cent.