The Philippine peso tumbled to a new five-year low, breaching the P46 to $1 level on Wednesday after China devalued the renminbi the previous day.
The Philippine currency closed Wednesday’s trade at P46.26 to $1, losing 33 centavos from its previous finish at P45.93.
Wednesday’s close marks the weakest close for the peso since it settled at P46.31 on July 23, 2010.
“The dollar strengthened earlier after China devalued the yuan by nearly 2 percent in an attempt to help exporters, describing it as a ‘one-off depreciation’ based on a new way of managing the exchange rate that better reflected market forces,” analysts at the research arm of the Metropolitan Bank and Trust Co. said in a note.
Besides the yuan depreciation, better-than-expected US unit labor costs data also helped the dollar pare its losses against other major currencies, Metrobank Research said.
The US Bureau of Labor Statistics reported that unit labor costs increased by 0.5 percent in the second quarter, above forecasts for a gain of 0.1 percent, following a rise of 2.3 percent in the first quarter.
Another analyst, Nicholas Antonio Mapa, of the Bank of the Philippine Islands (BPI), sees regional currencies weakening as Asian countries try to maintain competitiveness with Chinese exports.
“Now that the yuan is devalued, Chinese products are cheaper in dollar prices compared with the rest of the region, and thus, currencies tend to track the weakness,” he said.
Mapa said the dollar is gaining strength also because investors see the US currency as a safer asset to hold amid the uncertainty surrounding the markets as well as global growth.
“The next few days will be dominated by Chinese headlines and dictated by where the People’s Bank of China sets its fixing rate on any given day. We can expect more weakness in the peso, but it will merely be tracking the rest of the region,” he said.
The peso opened at P46 to $1 on the Philippine Dealing System (PDS) on Wednesday before hitting a low of P46.33 to $1.
Total volume transacted on the PDS rose to $1.109 billion from $1.106 billion in previous trading.