Peso nears 45 territory anew

By Bianca Cuaresma, BusinessMirror

Posted at Jan 15 2014 08:11 AM | Updated as of Jan 15 2014 04:13 PM

MANILA - The peso showed renewed weakness on Tuesday and came away from a full day’s trading 21 centavos weaker to 44.815 at the Philippine Dealing & Exchange Corp. (PDEx), the local currencies market.

Analysts viewed the peso’s weakness as a one-off event unlikely repeated for the long haul but some expressed concern its proximity to the psychologically important P45 per dollar level betrays a more fundamental problem.

The local unit surrendered some of its value to the strengthening US dollar and erased all gains from the previous day’s trading as it closed to a new three-year-low on Tuesday.

Data from PDEx show the peso immediately weaker at the opening minutes to P44.66 from P44.55 per dollar on Monday.

The local unit would end the day 21 centavos weaker than the previous day’s close of P44.605, its lowest since September 2, 2001 when the peso hit P44.96 per dollar.

Total traded volume stood at only $771.1 million, comparably higher than traded volume the previous day totaling $591.6 million.

A local bank executive said the peso was “soft diving” in recent days as a direct consequence of that period of monetary easing in the United States, the country’s largest trading partner.

The US Fed, boosted by more recent data showing the world’s largest economy gaining still more strength based on employment and similar leading indicators, was seen to begin unwinding so-called quantitative easing (QE) measures it adopted six years earlier.

As a result, analysts and executives at Security Bank, for example, anticipate the peso to trade at an average rate of P44 to as weak at P45 per dollar this year.

“Soft diving is a reaction to developments abroad, particularly the US unwinding of its quantitative easing regime,” Eduardo Olbes, executive vice president at Security Bank, said.

Analysts at the Development Bank of Singapore previously said the current weakness of the peso should only be temporary and the exchange rate could push back to P43 per dollar around April this year, if not sooner.

DBS took a long look at the region’s currencies market and concluded that the local unit would likely trade higher to around P43.60 per dollar at the end of the current quarter.

Even the Bangko Sentral ng Pilipinas expressed the buoyant view the local unit was bound to strengthen over the near term, given the country’s continued success at boosting the external sector while keeping the discipline needed to achieve a sound fiscal and monetary regime in place.

Deputy BSP Governor Diwa C. Guningundo said, for example, the peso might be expected to gain more strength as a matter of course, based on data involving the foreign-currency earnings of some 10 million overseas Filipinos and the balance of payments, which continue to be in a state of surplus.

“Directionally, we’ve been telling that remittances will continue to be strong and supportive of the balance of payment,” he said of money sent home by overseas Filipinos totaling $20.5 billion in only 10 months of 2013.

Such foreign-currency earnings help push consumption activities and boost overall growth measured at the gross domestic product (GDP) seen exceeding 7 percent in 2013.

Chief Market Strategist of Banco de Oro (BDO) Jonathan Ravelas said positive news from the US – the world’s largest economy and the Philippines’ major trading partner – more than offset any positive sentiment for the peso brought about by the news on the Philippines’s rising gross international reserves (GIR) and the expected surge in remittances

Ravelas cited the persistent weakness of regional currencies, the improving outlook for the US dollar due to the recovering economy of the United States and the taper fears as the main issues that ruled market players’ sentiment in the foreign exchange trading on Tuesday.

“These issues seem to dominate the news in the near-term, causing any peso strength as an opportunity to accumulate,” Ravelas said in a text message to the Business Mirror.

Likewise, Bank of the Philippine Islands (BPI) Associate Economist for the financial markets group Nicholas Antonio Mapa said the peso would continue to face weakness as the ‘dollar reigns supreme with the Fed taper underway’.

Mapa also said that the US dollar strengthened over the peso on Tuesday as corporates, like oil companies, took the opportunity to buy and secure dollar requirements after the slight appreciation on Monday.

“Corporates decided to buy up as much dollars at current rates, given that the overall outlook is for a strong US dollar in the near-term,” Mapa said in an e-mail to the Business Mirror.

Mapa said that while the peso may see ‘brief spells of correction’ such as what happened in Monday’s trade, the US dollar story appears to be intact.

BDO’s Ravelas likewise said that the peso is at a risk of entering the 45-territory but is possible to appreciate to P43.50 to 44 against the US dollar toward the second half of the year.

“Players should take cue from movements in the yen and other currencies. But sooner or later players will see that these weakness is temporary and may still have a chance to appreciate in the second half of 2014 possible towards 43.50 to 44 levels,” he said.

The local currency entered the 44-territory early December after the US released a series of positive data on its economy. Markets were likewise rattled when the US Federal Reserve announced in mid-December that they will start cutting down their stimulus by $10-billion monthly.

The government’s official assumption for the local currency is to average trading at P41 to 44 against the US dollar for this year.

The Bangko Sentral ng Pilipinas (BSP) likewise assured markets earlier that they are prepared to intervene in the market if foreign-exchange rates become excessively volatile.