Dollar making gains on strong reservesWednesday, September 22, 2021
BY DASHAN HENDRICKS
The currency market closed the trading day yesterday with the US dollar selling for $148.64 – it's lowest value since June 30. On June 30 it closed at $148.52.
The price of the US dollar at the close of trading yesterday is a culmination of 15 consecutive days over which it lost strength in Jamaica. Since it peaked at a record price of $156.14 on July 27, the US dollar has lost 4.8 per cent of its value. Still, since the start of the year, the American currency has gained 4 per cent, moving from $142.65 to the current price of $148.64. Yet, the losses over the last few days have gone almost unnoticed, but analysts say it was expected.
Dr Adrian Stokes, senior vice-president (SVP) and head of insurance and wealth management at Scotia Group Jamaica — and a financial economist — said the stronger Jamaican dollar is due to “a confluence of technical and fundamental factors”. Ryan Strachan, vice-president of investor relations at GK Capital Management – an investment and advisory firm which is owned by GraceKennedy – said he “is not surprised” by the movement.
Stokes outlined that, “On the fundamental side you have the current account deficit which is less than one per cent [of gross domestic product], so [it is] very, very manageable,” before pointing out that another factor affecting the dollar is net remittances, which “at the end of July [was] over US$300 million”.
A current account deficit occurs when the total value of goods and services imported into a country exceeds the total value of goods and services it exports. The lower deficit means the country's foreign currency earnings are almost in line with what it spends to purchase goods and services from abroad. Net remittances, on the other hand, are monies flowing into the country and add to the amount of foreign currency available to pay for imports. At the end of July, net remittance inflows were US$2.2 billion, according to data published by the Bank of Jamaica.
Strachan outlined similar reasons for the recent strengthening of the Jamaican dollar. “I've always believed there is adequate supply of US dollars in Jamaica, but short-term demand spikes would have created short-term movements in the US dollar value upward but, as has been consistent for quite a while now, there has been a band of upward and downward movement, which would usually take place towards the end of a quarter, but this most recent period of revaluation actually started in August, with NIR [net international reserves] at record levels”. At the end of August, Jamaica received about US$500 million from the International Monetary Fund (IMF), which boosted the NIR to just under US$3.9 billion – its highest level ever – and provided adquate supplies of foreign currency to meet demand to purchase goods and services from abroad.
“There is no reduced demand, but increased supply, so we are now starting to see a rebalancing so to speak,” Strachan added. “Technically, as well, you have a very large player in the market selling good volumes of US dollars...they are selling huge volumes in the market. I can't speculate why they are doing so, but if you look at the analysis of their trend, you will see that, around certain periods, they are very active selling US dollars into the market, increasing the supply of US dollar in the market,” Stokes noted.
Analysts surveyed by the Jamaica Observer said the large player is National Commercial Bank (NCB), though none would say how much US dollars the financial conglomerate is selling to the market at this time. Stokes, however, observed that “it has been substantial enough for the currency to be backing off”. The NCB Financial Group was contacted for comment; however, a response was not forthcoming up to press time.
Both Strachan and Stokes say they expect the Jamaican currency to continue strengthening in the near term but said over the longer term it is expected to lose value as it has been doing for decades. Strachan, however, went further, telling the Business Observer “I think...the dollar could be at $145 and be stable there.”