Oil, storm push peso to 7-1/2-month low
The local currency yesterday plunged to a seven-and-a-half-month low as oil prices climbed anew and as prospects for the domestic economy grew dimmer with typhoon Frank (international name: Fenghshen) causing major damage on the country’s revenue-generating sectors such as agriculture.
Concerns in Wall Street about the credit crisis also intensified, traders said.
The peso yesterday closed at P44.60 for every dollar, 25 centavos weaker than Friday’s close of P44.35. This has been the peso’s lowest since October 8 last year, when the peso traded for P44.760 for a dollar.
Traders said costlier crude oil, which yesterday rose to almost $137 per barrel due to escalating tensions between Israel and Iran, caused investors to stay away from the peso.
"It has been a trend that every time the cost of crude oil climbs, the peso weakens...There’s a correlation between dollar-peso exchange and oil prices," commented a trader.
Another trader said the typhoon that hit the country over the weekend contributed to the already dim prospects of the Philippine economy. This, he said, also weighed down on the peso yesterday.
"Peso sentiment was weak. There were concerns over high inflation...The typhoon just added to the factors that weighed down the peso," he said.
The trader said that although the Bangko Sentral ng Pilipinas reportedly intervened yesterday to "dampen the peso’s volatility," this didn’t work out.
"The peso got weaker and weaker until it reached P44.60," the trader said.
Another currency strategist said the peso’s weakness yesterday was due to the huge corporate demand for dollars.
"Importers were hedging dollars forward. This means they were advancing their dollar requirement," he noted.
The currency dealer said he expects to see the peso reaching the P44.75-resistance level today.
HSBC, meanwhile, expects the peso to fall to P47 per dollar by the end of September and ease further to P49 by the end of 2008, rather than P42.20 and P42.40 previously, analysts at the bank said in a note.
Other Asian currencies also fell yesterday amid fears of the fallout from lofty oil prices, with investors awaiting for fresh signals from the Federal Reserve’s policy review later this week.
The South Korean won dropped as low as 1,039.3 per dollar, down about 1% as high oil prices raised expectations that firms would have to buy more dollars for imports while local stocks slipped.
The won, Asia’s worst-performing currency, has lost almost 10% versus the dollar so far this year.
Oil prices climbed above $136 a barrel as escalating tensions between Israel and Iran countered the impact of Saudi Arabia’s promise to pump more oil.
The MSCI index of Asian stocks outside Japan fell almost 0.7%. The index has fallen for five straight weeks and is down about 17% this year.
The Indian rupee lost a tenth of a percent to 42.972 per dollar as the stock market lost ground amid heightened concerns about capital outflows.
The Taiwan dollar inched down to 30.411 per US dollar, also pressured by selling of local stocks.
The Singapore dollar pulled back to 1.3670 per US dollar from as high as 1.3632 in early trade, after data showed inflation held at a lower-than-expected 7.5% in May, but still hovered at 26-year highs. It had been expected to come in at 7.8%.
The Thai baht rose to 33.33 per dollar, up almost half of a percent from late Asian trade on Friday.
"The baht will move in tight ranges for the day — the market is awaiting for FOMC," said a trader in Bangkok, referring to the Federal Open Market Committee, which is widely expected to hold interest rates steady at a two-day meeting starting tonight.
With no rate change so widely expected, investors will look to the statement accompanying the decision for clues on the future course of monetary policy. — Benjamin V. Buco Jr. with Reuters