PESO WEAKENS TO 43:$1
MANILA, MAY 21, 2008 (STAR) By Des Ferriols - The peso weakened to 43:$1 yesterday as the market grew more wary of a widening trade deficit due to soaring oil prices.
The peso has been circling the P43 mark since last week but traders said the Bangko Sentral ng Pilipinas (BSP) has been resolutely supporting the currency just a little above that level.
The market had warmly received news that the national government generated a budget surplus in April. But the enthusiasm did not last long as oil prices careened past the $127/barrel level on supply fears.
The BSP earlier warned that rising oil prices would narrow down the surplus in the country’s international reserves because import costs would also go up.
Analysts also expected dollar buyers to attempt to test the BSP’s resolve to keep the dollar steady. They said they expected dollar bulls to flirt with P42.85 on the way to P43 and this was exactly what they did yesterday.
“However, we are seeing a short term corrective move as we feel the market is already dollar overbought,” analysts said.
But the dollar did break past the P42.85 mark and after touching P43.00. The market was expecting the peso to surge past and test the P43.10 level.
BSP deputy governor Diwa Guinigundo said that while foreign exchange inflows had been steady in the first few months of the year, there was a notable weakness in foreign portfolio investments.
The BSP had been confident that remittance inflows from overseas Filipino workers would continue to support the peso but apparently not well enough to offset the outflow of foreign exchange due to risk aversion.
Foreign portfolio investments continued to flow out of the country in April, leading to a $113.7-million net outflow for the first four months of the year as investors shed their holdings in emerging markets.
BSP data indicated that registered portfolio investments resulted in a net outflow of $49.9 million in April, way below the $197.7-million net outflow in March but still a reversal from the $261.9-million net inflow in April 2007.
“Principally accounting for this development were investors’ continuing risk-aversion and concerns on the impact of elevated energy and commodity prices on domestic interest rates and corporate earnings,” the BSP said in a report.
Enrollment period is also nearly over and according to some traders, overseas Filipinos might also be waiting for a more favorable exchange rate before sending more money than necessary.
Earlier, the Development Bank of Singapore said the peso is likely to test the P43:$1 level this year but it would strengthen towards the end of the year as the US dollar buckles under the pressure of the US presidential elections.
DBS said the peso-dollar exchange rate had already bounced off the lower limit of its depreciation band, which the bank placed at P42.5 to P43.
“This is in line with our expectations for the Philippine peso to return some of the gains chalked in the past few years,” DBS said. “We remain wary that this may come about from US-led renewed risk aversion leading to emerging market jitters in the second quarter.”
According to DBS, one of the main threats to the peso was the stock market, which was still bearish despite the recovery in the past week or so. Stock investors remain wary of corporate prospects amid fears of a global economic slowdown. As a result, foreign exchange inflows in the form of foreign portfolio investments have been volatile since the beginning of the year.
DBS said the BSP also did not seem to mind the appreciation of the peso in the past, resisting mounting political pressure to cap the rise of the currency that has been eating through export and remittance incomes.
Chief News Editor: Sol Jose Vanzi
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