Peso dives to new low; Fed taper issue blamed

Posted at 02/04/14 7:23 AM

MANILA - Market sentiment over the US Federal Reserve’s (the Fed) decision to make the second cut in its asset-purchase program still dominated the local trading unit of the peso after the three-day trading break, as it opened this week at a new three-year low against the US dollar on Monday.

Data from the Philippine Dealing & Exchange Corp. (PDEx) showed that the peso plummeted further to close trading for the day at 45.41 to a dollar. It was the lowest trading value for about 30 months, or when the peso hit 45.53 to a dollar on August 24, 2010.

It was also a 9-centavo depreciation from the previous trading day’s close at 45.32 to a dollar on Thursday last week.

The total traded volume on Monday was at $586 million, significantly lower than the total trading volume on Thursday at $846.7 million.

The Philippine Stock Exchange index (PSEi) also slumped on Monday across all sectors, excluding the property industry. In particular, the PSEi declined by 0.43 percent, or by 25.89 points, on Monday.

The local financial markets have been rattled for several weeks following global developments that dampened investor sentiment in emerging markets like the Philippines.

Bank of the Philippine Islands (BPI) associate economist Nicholas Mapa said the weakness in the peso today is an effect of the good data from the US and data releases from China showing a cooling Chinese economy.

“Risk sentiment has been impaired considerably in the past few days, given poor prospects for the emerging markets in 2014. With the FOMC [Federal Open Market Committee] opting to enact the second round of the taper, risk markets are adjusting their portfolios as they come to terms with the decreased amount of bond purchases by the Fed. Good data from the US validate that the Fed taper is in full effect and successive cuts are not a remote possibility,” Mapa said in an e-mailed response to the BusinessMirror.

“Adding to this dour sentiment were the data releases from China, namely PMI [purchasing managers’ index] manufacturing and PMI services, which both showed signs of a cooling Chinese economy,” he added.

“Given the trade linkages, Asian markets that were open after the Lunar Festival, sold off.”

Security Bank economist Patrick Ella, likewise, said the dollar strength and risk-off environment were still being dominated by the Fed taper issue.

“Philippine fundaments are being lost in the clustered volatility of the entire emerging-market asset class,” Ella said.