The peso touched the 50-a-dollar level for the first time in eight years before settling slightly higher at 49.98 against the greenback Thursday, as investors hold on to the US currency in anticipation of its further strength.
The Philippines is ground zero for the rout as a resurgent US dollar and Manila’s still-expensive stock market have made it even more vulnerable, with the peso plunging to an eight-year low.
The peso lost P0.12 from the close of 49.86 a dollar on Wednesday. The peso opened Thursday’s trading at 49.95 and touched the 50-a-dollar level at one point before settling at 49.98 at the close.
It was the local currency’s weakest level in eight years, or since it traded at 49.99 a dollar on Nov. 20, 2008 at the height of the global financial crisis.
ING Bank Manila senior economist Joey Cuyegkeng said the peso’s weakness was in line with weakness of other Asian currencies as external pressures have become more dominant.
“These include expectations of not only higher US benchmark policy rate next month but also expectations that 2017 would also see another 50 basis points hike,” Cuyegkeng said in a statement.
“In an environment of uncertainties, market participants have been slowly increasing US dollar portion of holdings for future foreign exchange payments and servicing and for alternative investments. We are closely watching developments for now and retain our year-end 2016 P49.50 forecast,” Cuyegkeng said.
Finance Secretary Carlos Dominguez III said the peso movement was an expected reaction to the anticipated early rate increase by the US Federal Reserve, with other Asian currencies also moving in the same direction.
“We are watching the currency movements very closely. We seem to be moving in the same direction as the other currencies. We just want to avoid abrupt changes in the exchange rates,” Dominguez said in a statement.
Dominguez said the country’s rock-solid macroeconomic fundamentals would enable the domestic economy to survive external shocks such as higher US interest rates and a stronger dollar.
Finance undersecretary Gil Beltran said the strengthening of the greenback against the peso “is expected as an impact of the Fed normalization.”
“The peso is just normalizing. It was P57 per the US dollar in 2004. All other currencies are moving in the same direction,” he said.
Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said Wednesday the volatility in financial markets was global and basically, the weakness in emerging markets’ currencies was due to dollar’s strength.
“Because the expectation was that interest rates are going to rise in the US as the new administration pushes for spending for higher economic growth which may trigger higher inflation and therefore higher rates,” Tetangco said.
“So we see the flow of capital out of emerging markets and back to the US. So if you look at movements of Asian currencies, the peso is basically in the middle of the range…,” Tetangco said.
Emerging markets globally are experiencing fund withdrawals, but what makes the Philippines different, or vulnerable, was its valuation,” said Smith Chua, chief investment officer at Bank of the Philippine Islands.
“The foreign-exchange movement has also been a significant factor for overseas investors. As the year is heading to a close, some of them want to lock in their gains before the peso weakens further.” With Bloomberg