Uncertainties keeping peso weak ahead of holidays

In the runup to the expected heavy inflow of remittances during holiday season, the peso exchange rate has been among weakest over the past three weeks amid risk aversion and profit-taking triggered by news of a new COVID-19 variant.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., in a research note observed that at P50.43 against the US dollar at trading’s close on Nov. 26., the peso has depreciated by 2.407 pesos or 5 percent from P48.023 at the end of 2020.

Also, the peso depreciated by a total of P2.82 against the greenback over the past nearly six months from P47.51 on June 1, which was the strongest intraday low in the past four and a half years.

Good for exports

A weak peso generally benefits exporters as local goods are cheaper for overseas customers to buy. A weak peso also makes imports more expensive, which is a considerable factor for a net importer like the Philippines.

Ricafort said the peso exchange rate was also weaker recently due to, among other factors, profit-taking in the local stock market.

“Some election-related leads could have also triggered the recent healthy profit-taking in the local financial markets,” he said.

“Generally, markets have yet to see further details or certainty on the proposed policies, reforms, platforms of governance of the leading presidential candidates,” he added.

More business activity

Further, Ricafort said recent measures to increasingly re-open the domestic economy such as the nationwide adoption of the alert level system could lead to some pick up in business activities that could entail increase in imports.

On the other hand, the momentum toward weakness was offset by factors that include the expected increase in remittances from overseas Filipinos and conversion to peso in preparation for the Christmas season.

“Proceeds of export sales could also seasonally pick up in the fourth quarter of 2021,” he said. INQ