Peso seen to visit 46:$1 territory

The peso may test the 46-to-$1 level in the coming weeks as investors continue to flee emerging markets like the Philippines on the promise of improving yields in advanced markets such as the United States and Europe.

A weaker currency, however, may help provide an extra boost for domestic economic activity, allowing exporters to recover lost competitiveness and increasing the peso value for every dollar the country earns from remittances and outsourcing firms.

New York-based think tank Global Source in a report this week said the peso’s “free fall” was part of a region-wide response to the US Federal Reserve’s monetary stimulus.

“Rather than being worried, we get the sense that government economic managers in fact welcome the peso’s weakness,” Global Source said on Wednesday.

“Basically, they see this as a region-wide response to continuing speculation about the likely strength of the US economic recovery and its impact on the speed of the Fed’s taper,” the report read.

The peso fell to 45.25: $1 this week, its lowest point since August 2010, tracking losses of other Asian currencies.

“To the extent that continuing portfolio rebalancing by both residents and non-residents leads to capital outflows, there may be additional pressure on the peso,” Global Source said. “We would not be surprised if it tests the 46: $1 level in the weeks ahead.”

Currencies across the region have fallen against the greenback amid speculation that the Fed would further reduce its monthly asset purchases as the US economy shows more signs of recovery.

The peso’s weakness comes despite the country’s robust foreign exchange income, as shown by its balance-of-payments (BOP) surplus of $5.085 billion at the end of last year.

The BOP accounts for all the money that comes in and out of the country annually.

This includes money spent for imports and debt payments, and money earned from remittances, exports, and the business process outsourcing and tourism sectors.

Global Source said the weakening peso had raised concerns that the country’s external payments position, referring to the amount of dollars the country earns from various sources, may come under pressure as imports to fund reconstruction and other infrastructure needs increase this year.

On the contrary, Global Source said the country stands to benefit from a weaker peso.