The peso tumbled to a new five-year low against the US dollar Monday, losing P0.19 to close at 46.92 from 46.73 on Friday, as investors’ anticipation for a US interest rates hike this year, coupled with a weak Chinese economy, buoyed the greenback against most currencies.
It was peso’s weakest level since 47.1 on May 25, 2010. Total volume turnover stood at $569 million, higher than $393 million in the previous trading. The peso opened Monday’s trading at 46.95, P0.22 weaker than the close on Friday.
“The peso’s weakness is aligned with the rest of the regional currencies, which also declined against the dollar,” Nicholas Antonio Mapa, research officer of the Bank of the Philippine Islands’ financial markets and treasury division, told The Standard.
“Another reason that contributed to the decline of the peso was the weak equities during the day,” Mapa said.
The Philippine Stock Exchange Index tumbled 124.96 points, or 1.8 percent, to 6,926.82 on a thin value turnover of P4 billion. Story on B3.
Jun Calaycay of Philstocks Financial Inc., formerly Accord Capital Equities Corp., said in his daily report the stock market’s trading sentiment was “further dragged by China’s revision of its growth target, putting even more uncertainty on the table…”
Earlier reports on Monday said China’s economy–the second-biggest in the world–grew slower in 2014 than first announced. Gross domestic product growth last year was revised lower by 0.1 percentage point to 7.3 percent.
The revision was triggered by the slower services industry growth of 7.8 percent in 2014, lower than 8.1 percent previously announced.
Aside from the fear of a slowdown in Chinese economy, Mapa said most investors also anticipated the US Federal Reserve to increase interest rates in its meeting middle of this month.
“[I believe] they will raise interest rates on Sept. 17,” Mapa said.
Despite the peso’s weakness, Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo earlier said the local currency had fundamental bases for stability amid the expected interest rates hike in the US this year.
Guinigundo said remittances from migrant Filipino workers amounting to around $25 billion a year, plus the business process outsourcing receipts contributing a significant amount, would provide support for the peso.
Guinigundo said “bonuses” coming from tourism and exports would also provide the needed shield for the peso. “Tourism has been quite resilient,” he said.
Guinigundo said the weakness showed by the peso against the greenback was due to market sentiment, which was a regional phenomenon.
He said people were speculating the US dollar because of the impending normalization of monetary policy in the US, resulting in the greenback’s strength against the regional currencies, including the peso.
The peso–which has been trading above the 45-a-dollar mark since June 8 this year–breached the 46-a-dollar level on Aug. 12. It closed at 46.26 from the 45.93 a day ago, after the People’s Bank of China reduced the yuan’s value against the dollar for the second day, trimming the reference rate by 1.62 percent and dragging the rest of the region with it.
