Peso still rising
Philippine Star - December 07, 2007

<< back to news

Supported by heavy dollar inflows, the peso rose to a new seven-and-a half-year high of 41.850 to the  dollar yesterday, leaving behind other currencies in the region as uncertainties about the fallout from the US mortgage crisis and interest rate decisions persisted.

At the close of trading of the Philippine Dealing System (PDS), the peso settled at 41.880, up 15 centavos from Wednesday’s close of 42.030 to $1.

Traders said the strength of the peso was due mainly to huge inflows from overseas Filipinos sending money to their families in preparation for the holiday season.

The seasonal strength of remittances was also accompanied by robust inflows of foreign portfolio investments into the stock market as financial markets saw relief in the latest US jobs data.

“Remittance flows are strong but I expect we should see some people covering dollar short positions today,” said a trader in Manila, referring to transfers back home from Filipinos working overseas, which are usually Peso still high at the end of the year.

 Morgan Stanley strategist Stewart Newnham said the Bangko Sentral ng Pilipinas (BSP) should be careful about how it moved out of the sweet spot where high interest rates support the peso but a declining trend in rates brings flows into equities and bonds.

“Monetary conditions should therefore be tightened quickly in order for the BSP to be seen to be ahead of the inflation curve,” Newnham wrote to clients.

“This is best done with the BSP taking a more hawkish tone in its communication with the markets and allowing further peso appreciation to create the necessary disinflationary offset — good news for the bullish peso call.”

 The Philippine fundamentals of a strong macroeconomic position, fiscal consolidation and stable politics were all relatively favourable, he said, and the upward trend in the peso was very much in place.

Analysts also said the US private sector jobs data boosted market sentiments and led to a rally in Asian stock markets.

After breaching the 42:$1 support level, analysts said the market would be looking at 41.80  and possibly as high as 41.75 to the dollar.

According to a trader, the Bangko Sentral ng Pilipinas (BSP) was seen in the market but not really to aggressively cap the peso against the dollar but generally offering token bids throughout the week.