Peso seen to strengthen further

Posted at 01/13/13 4:28 PM

MANILA, Philippines -- The peso closed at a fresh high Friday, erasing a previous record set on Thursday with analysts expecting it to strengthen further unless the Bangko Sentral ng Pilipinas (BSP) acts.

The local currency, which was Asia’s second best performer last year, ended trading at 40.61 to a dollar, appreciating by nine centavos from Thursday’s 40.70-$1.

This was the peso’s strongest performance since it closed at 40.56 on March 6, 2008. During Friday’s trading, the unit touched its strongest level at 40.565-$1 and the weakest, 40.65-$1.

“Basically there is no demand for dollar, so really the bias is for an appreciating peso in the near term. So, most likely the peso will further appreciate,” said Jonathan Ravelas, chief market strategist at the BDO Unibank Inc., in a phone interview.

“Everyone is waiting for the next move of the central bank, so really there is no reason for the peso to depreciate,” he added.

In its first two weeks of trading, the peso has already strengthened by 1.07% against the US currency since it closed 2012 at 41.05-$1. A local bank trader said foreign inflows at the equity markets contributed to this performance.

“Foreign inflows to the stock market yesterday were the highest for the week, according to Bloomberg data,” a trader said in a phone interview.

The benchmark Philippine Stock Exchange index (PSEi) bounced back Friday, adding 33.18 points or 0.55 percent to close at 6.051.75. PSEi had achieved six record-highs this year interrupted only by profit taking last Thursday.

In comparison, dollars traded at the Philippine Dealing Exchange Corp., the foreign exchange trading platform, amounted to $1.132 billion, slightly down from Thursday’s $1.228 billion.

“Foreign inflows were of comparable value to (Thursday),” the trader said.

For next week, Ravelas said the peso could again test new highs. The trader said peso is expected to trade between 40.50 and 40.60 to a dollar.

“Of course, the BSP could always intervene,” he said.

The BSP has implemented a number of macroprudential measures last year targeted at tempering capital inflows entering the local economy and causing the peso to shoot up. A strong peso trims the value of dollar export and business process outsourcing earnings.

It also slashes the value of remittances from overseas Filipino workers, one of the economy’s prime drivers.

The BSP, in order to manage peso’s strength, has banned foreign funds into special deposit accounts and put a cap on banks’ non-deliverable forward transactions, among others, last year.

This is aside from its continued purchase of the greenback on the spot market, also aimed at taming the peso’s firmness. The BSP’s intervention, unfortunately, adds to its expenses.