Westpac Fiji’s senior economist Shamal Chand reported that the foreign exchange market has seen significant activity over the past few months. This volatility in Fiji’s counterpart currencies has been largely attributed to rate cuts implemented by several major central banks, including the European Central Bank, the Reserve Bank of New Zealand (RBNZ), and the US Federal Reserve.
Chand noted that the global foreign exchange landscape is presenting mixed signals. On one hand, declining inflation in developed economies suggests that monetary policy easing might be considered. Conversely, strong economic growth, particularly in the resilient US economy, implies that these central banks may be acting too hastily.
There are rising concerns about a potential recession if central banks in developed nations maintain high interest rates for an extended period. Despite these international fluctuations, the Fijian dollar has performed relatively well against its main counterparts. However, it has lost most of its gains against the US dollar since 2021.
In Westpac Fiji’s recent quarterly economic update, Chand explained that the nominal effective exchange rate (NEER) has remained relatively stable, fluctuating between 82.85 and 86.82 since 2010. He pointed out a decline from 85.6 in May 2024 to 82.9 in July 2024, indicating that the Reserve Bank of Fiji may have adjusted the currency weights in its basket.
Additionally, the real effective exchange rate (REER) fell from 108 in 2019 to the current 93.5, primarily due to the Fijian dollar’s depreciation against the US dollar, which has improved Fiji’s trade competitiveness.
Looking ahead, based on the current global economic trends and expected decisions by central banks impacting Fiji dollar pairings, the exchange rate between the Fijian and US dollars is projected to rise from 0.4457 to 0.46 by December 2025. Meanwhile, the FJD/AUD exchange rate is anticipated to decrease 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 forecasts are in line with Westpac Economics’ October outlook, which anticipates further rate cuts from the US Federal Reserve and RBNZ in their upcoming meetings, while the Reserve Bank of Fiji is expected to maintain steady rates until next year.