Peso climbs as investors weigh improving US economy, robust PH growth

Photo by Noy Morcoso lll/INQUIRER.net

MANILA, Philippines — After manifesting higher volatility than usual throughout trading hours on Thursday, the peso closed at 42.32 against the US dollar, up by 12 centavos from the previous day’s finish and the 11-month low of 42.44:$1.

Pressures that boosted and dragged appetite for the local currency clashed on Thursday, as the country’s financial markets weighed indicators of an improving US economy on one hand and reports of another robust growth of the Philippine economy in the first quarter on the other.

Trading range was wide, with the intraday high hitting 42.22:$1 and the intraday low settling at 42.63:$1.

Volume of trade amounted to $1.11 billion from $1.06 billion previously.

Traders said indicators showing an improving employment situation, growing retail sales, and rising consumer confidence in the United States fueled appetite for the dollar and dollar-denominated assets.

Such indicators likewise supported speculations that the US Federal Reserve would soon temper and eventually end its stimulus program, under which it has been injecting liquidity to the world’s biggest economy through bond purchases.

Since portions of liquidity being injected by advanced economies normally spill over to emerging markets like the Philippines in the form of portfolio investments, talks about an end of the US Fed’s stimulus program have sparked speculations of flight of capital away from emerging markets and of depreciation of their currencies.

Projections of depreciation of emerging-market currencies, in turn, drove some fund owners to make early positions by buying dollars.

On the other hand, however, favorable performance of and rosy projections for the Philippine economy continue to make the peso attractive to many fund owners.

According to the Bangko Sentral ng Pilipinas, the latest movement of the peso, which weakened to the 42-to-a-dollar territory on Wednesday, is not worrisome.

BSP Governor Amando Tetangco Jr. said the Philippines would not likely suffer from significant flight of capital in the improvement of the US economy. This is because the Philippines continues to show encouraging economic performance, according to Tetangco.

In the first quarter, the Philippines grew by 7.8 percent, registering the fastest growth rate in Asia and surpassing China’s 7.7 percent.

According to Tetangco, an exchange rate in the 42:$1 level is not worrisome and still reflects market confidence in the Philippine economy.

“The peso continues to be supported by fundamentals,” Tetangco told reporters.

The depreciation of the peso this week is actually a welcome development for the BSP, which had been contending with losses due to the local currency’s appreciation over the last few years.

Appreciation pressures on the peso in 2012 forced the BSP to engage in heavy dollar buying to prevent an even steeper rise of the local currency. Huge spending led to P95 billion in net loss for the BSP last year.

The recent weakening of the peso, therefore, is seen to temper the BSP’s losses.