Weakened largely by external, domestic factors
THE peso fell to the P48 per dollar territory on Monday, weakened by a mix of international and domestic factors to hit a seven-year low.
Monday’s trading saw the peso losing 26 centavos to settle at P48.25 to a dollar from P47.99 on Friday, its weakest since September 15, 2009.
It closed at P48.25, the weakest level since September 15, 2009 when a dollar bought P48.33.
The local currency opened at P48.07:$1 on the Philippine Dealing System (PDS) before trading between P48.05 and P48.26. Total volume reached $758.5 million from $590.5 million Friday.
“The peso movement reflected the continuing uncertainty about the US Fed’s next policy action, just like the other regional currencies, plus strong foreign exchange demand for fixing and corporate requirement,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said in a text message.
ING Bank Manila senior economist Joey Cuyegkeng noted the peso continued to underperform, explaining that the relative underperformance takes into consideration common factors among the region’s currencies and focuses on factors that largely affect a particular currency.
External factors that have also affected other currencies include developments in G3 economies like the recent decisions of European Central Bank, the US Federal Reserve and the Bank of Japan, as well as market expectations of a possible Fed rate hike in December.
“Other external factors are promising for emerging markets. China’s recent reports have been favorable and boosts expectations of a soft landing,” Cuyegkeng said.
Also, the peso’s underperformance against other Asian emerging market currencies has to do with local factors that include expectations of a lower current account surplus.
“Some analysts think the current account would post a deficit this year or in the coming years. If this materializes, then we would be back to a twin deficit environment that plagued the economy early last decade,” Cuyegkeng noted.
Nevertheless, he believes that other components of structural inflows would offset a larger trade deficit. “We are more positive and expect a current account surplus but at a more modest level.
“In addition, unlike in the early last decade, the fiscal deficit now and the programmed deficit would likely remain below the fiscal deficit that was seen early last decade,” he said.
In sum, economic fundamentals remain favorable but there are emerging stresses on the economy that could be exacerbated by non-economic factors, he said.
“Investors have priced in a lot of positives about the economy and are now on the lookout for risks that could disappoint expectations,” he added.