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Summer slide of the dollar - $70 and falling, despite BoJ interventions
published: Sunday | September 16, 2007
Susan Gordon, Business Reporter
AlexanderJames, trader with First Global Financial Services, says central bank reserves are likely to fall by another US$100 million to US$250 million. - contributed
The Jamaican dollar has lost more than four per cent of its value year to date, but the decline, while steady, only caught wide attention after the currency shot through the psychological $70 barrier against the U.S. dollar last week.
Foreign-exchange traders said that the redemption of index bonds, which matured in August, election jitters and the tight credit in the U.S. market were the biggest push factors contributing to the slide.
"The magnitude of the depreciation seen in recent weeks is a direct result of the index-bond maturity," Alexander James, trader in equity and fixed-income at First Global Financial Services, told Sunday Business.
"This type of activity on the dollar tends to be pre-Christmas buying by importers. However, in this instance, the slide in the Jamaican dollar seen over the past two weeks is largely attributed to the expected maturity of the US$ indexed bond priced at US$225 million."
One treasurer said he expected the Jamaican dollar, which traded at $70.21 against the U.S. on Friday, to reach the $71 mark by year end, especially as the Christmas season approaches.
At the end of 2006, the Jamaican was valued at $67.15.
Since then, it has fallen 4.6 per cent.
In August, the decline for the month was 1.8 per cent, said senior treasurer at Dehring Bunting and Golding Limited, (DB&G) Vaughn Cunningham.
Cunningham said the Bank of Jamaica intervened 10 to 12 times in August, selling U.S. dollars to buyers who were not allowed to sell at more than a five per cent spread to mainly manufacturers.
election jitters
He also believed some election jitters might have placed pressure on the Jamaica currency.
But the trader believes, notwithstanding the central bank's attempts to stem the dollar's decline, the exchange rate will dip further.
"I think it may reach about $71.20 by the year end, because you have merchants going into the market for the Christmas season."
The saving grace may be the winter tourist season, but that does not kick off until December 15, and even then, those forex inflows, said Campbell, do not go into normal circulation, but directly to the BOJ.
For the first two weeks of August, the dollar depreciated by 0.17 per cent to reach J$69 to US$1, and then declined by an additional 1.19 per cent to $69.83 for the last two weeks.
James notes that the Net international reserves (NIR) which now stands at US$2.07 billion is also dwindling.
"Monies were paid out of the NIR for the maturity of global bonds for September 1, 2007," he said, noting that the drawdown was substantial and likely to range between US$100 and US$250 million.
susan.gordon@gleanerjm.com
Summer slide of the dollar - $70 and falling, despite BoJ interventions
published: Sunday | September 16, 2007
Susan Gordon, Business Reporter
AlexanderJames, trader with First Global Financial Services, says central bank reserves are likely to fall by another US$100 million to US$250 million. - contributed
The Jamaican dollar has lost more than four per cent of its value year to date, but the decline, while steady, only caught wide attention after the currency shot through the psychological $70 barrier against the U.S. dollar last week.
Foreign-exchange traders said that the redemption of index bonds, which matured in August, election jitters and the tight credit in the U.S. market were the biggest push factors contributing to the slide.
"The magnitude of the depreciation seen in recent weeks is a direct result of the index-bond maturity," Alexander James, trader in equity and fixed-income at First Global Financial Services, told Sunday Business.
"This type of activity on the dollar tends to be pre-Christmas buying by importers. However, in this instance, the slide in the Jamaican dollar seen over the past two weeks is largely attributed to the expected maturity of the US$ indexed bond priced at US$225 million."
One treasurer said he expected the Jamaican dollar, which traded at $70.21 against the U.S. on Friday, to reach the $71 mark by year end, especially as the Christmas season approaches.
At the end of 2006, the Jamaican was valued at $67.15.
Since then, it has fallen 4.6 per cent.
In August, the decline for the month was 1.8 per cent, said senior treasurer at Dehring Bunting and Golding Limited, (DB&G) Vaughn Cunningham.
Cunningham said the Bank of Jamaica intervened 10 to 12 times in August, selling U.S. dollars to buyers who were not allowed to sell at more than a five per cent spread to mainly manufacturers.
election jitters
He also believed some election jitters might have placed pressure on the Jamaica currency.
But the trader believes, notwithstanding the central bank's attempts to stem the dollar's decline, the exchange rate will dip further.
"I think it may reach about $71.20 by the year end, because you have merchants going into the market for the Christmas season."
The saving grace may be the winter tourist season, but that does not kick off until December 15, and even then, those forex inflows, said Campbell, do not go into normal circulation, but directly to the BOJ.
For the first two weeks of August, the dollar depreciated by 0.17 per cent to reach J$69 to US$1, and then declined by an additional 1.19 per cent to $69.83 for the last two weeks.
James notes that the Net international reserves (NIR) which now stands at US$2.07 billion is also dwindling.
"Monies were paid out of the NIR for the maturity of global bonds for September 1, 2007," he said, noting that the drawdown was substantial and likely to range between US$100 and US$250 million.
susan.gordon@gleanerjm.com
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