The peso broke through the P47: $1 psychological barrier in Tuesday morning trade before closing back at the P46 level, with the market buffeted by speculation that the dollar may rally soon on an impending US Federal Reserve key rate hike.
The Philippine currency finished Tuesday’s trade at P46.93, paring the day’s loss down to 1 centavo. The volume of transactions on the Philippine Dealing System rose to $623.6 million from $569.33 million the previous day.
The local currency hit its softest spot for the day at P47.040 and its firmest at P46.925.
The central bank, as well as the traders, had expected the market’s volatility on speculation of a Fed monetary tightening as the US economy and financial markets approach normalcy amid a stabilizing economic recovery.
Jonathan Ravelas, chief market strategist at Banco de Oro, said expectations of a US Federal Reserve rate hike fueled the greenback’s advance.
He sees the local unit trading between P46.90 and P47.10 a dollar in the near term.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo reiterated that the day’s episode for the local currency is one of the expected outcomes of the continuing uncertainty and volatility on the global financial markets amid speculation about a US interest rate increase.
But he stressed that the peso has fundamental basis for stability, such as remittances and business process outsourcing, apart from bonuses from tourism and exports.
“Globalization and interdependencies quickly propagate spillover effects especially from the big and important economies. But we remain in very good position given our strong macroeconomic fundamentals and resilient financial system,” Guinigundo told reporters in an e-mail on Tuesday.
Guinigundo said the BSP is now more risk-conscious and continues to simulate various scenarios and conduct stress tests regularly.
“We recognize the interaction between monetary policy and macroprudential measures could have differential impact on both output and inflation on one hand and the financial sector on the other hand. We are also taking advantage of both monetary and fiscal space in the adjustment process,” Guinigundo added.