WESTPAC Fiji’s senior economist, Shamal Chand, commented on recent developments in the foreign exchange market, noting significant volatility among Fiji’s counterpart currencies attributed to interest rate reductions by the European Central Bank, the Reserve Bank of New Zealand (RBNZ), and the US Federal Reserve.
According to Chand, the global foreign exchange landscape is presenting mixed signals. On one hand, declining inflation in developed countries supports the case for easing monetary policies. Conversely, robust growth—especially from a resilient US economy—indicates that central banks might be acting too hastily.
Chand expressed concerns over the risk of a recession should central banks in developed nations keep interest rates elevated for extended periods.
In the Westpac Fiji quarterly economic update, he pointed out that despite these global shifts, the Fijian dollar has maintained a relatively stable position against major currencies. However, it has lost most of its gains against the USD since 2021. The nominal effective exchange rate (NEER) has remained stable within the range of 82.85 to 86.82 since 2010. Notably, NEER fell from 85.6 in May 2024 to 82.9 in July 2024, indicating that the Reserve Bank of Fiji (RBF) may have adjusted the currency weights in its basket.
Moreover, the real effective exchange rate (REER) decreased from 108 in 2019 to the current rate of 93.5, attributed to the weakening of the Fijian dollar against the USD, which has somewhat improved Fiji’s trade competitiveness.
Looking forward, based on current global economic trends and expected decisions from central banks regarding Fiji dollar pairs, Chand forecasts that the Fiji/US dollar exchange rate will rise from 0.4457 to 0.46 by December 2025. Meanwhile, projections suggest a steady decline in the FJD/AUD, from 0.6596 to 0.64, while the FJD/NZD is expected to increase from 0.7279 to 0.73 during the same timeframe.
These expectations align with Westpac Economics’ outlook for October, which anticipates further rate cuts by the US Federal Reserve and RBNZ in their upcoming meetings, while the RBF is likely to maintain steady rates until next year.