PHILIPPINE DAILY INQUIRER - October 4, 2009

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Peso seen breaking into 46:$1 territory

THE PESO IS EXPECTED TO HOVER IN THE 46-to-a-dollar territory this week, following through with its intra-day appreciation past the 47 level last Friday.

Analysts said the fact that the peso touched 46.99 to a dollar last Friday indicated that the local currency could hit a stronger level this week, citing the effects of the weakening of the greenback against Asian currencies.

After hitting an intra-day high of 46.99, the peso closed at 47.10 on Friday. Volume of trade amounted to $695.5 million.

Although Friday’s finish was still weaker than the previous day’s close 47.05, traders said the peso could again break into the 46 territory this week as some investors shy away from the greenback to place more money in perceivably riskier but higher-yielding investments.

Jonathan Ravelas, market strategist for Banco De Oro, said the peso could touch 46.80 to a dollar this week.

“The peso is simply benefiting from a weakening dollar. Because people believe that the global economy is slowly recovering from the crisis, they gain more appetite to invest in things like commodities and other instruments and move away from the dollar,” Ravelas said.

Meanwhile, other market analysts said some investors chose to move away from the dollar as the US economy recovers from the turmoil at a slow pace.

The US economy shrank 0.7 percent in the second quarter, although an improvement from the 6.4-percent contraction in the first quarter.

The Bangko Sentral ng Pilipinas said the peso might gain some strength in the coming months because of the resurgence of risk appetite of foreign investors and growing attractiveness of emerging economies like the Philippines.

BSP Deputy Governor Diwa Guinigundo said that once the global economy shows firmer signs of recovery from the turmoil, the Philippines and other emerging markets would benefit from higher inflows of foreign direct investments and foreign portfolio investments.

Given the resiliency shown by emerging economies amid the global crisis, he said more investors would be keen on investing in these markets.

A consequence of rising inflows of foreign investments would be the appreciation of the peso, Guinigundo said.

The BSP has adopted the policy of keeping a market-determined exchange rate. It intervenes in the foreign exchange market only in times of sharp and sudden appreciation or depreciation of the local currency, which disrupts budget planning by businesses, monetary officials said.

Standard Chartered bank, in a commentary, said it expected the peso to improve in the coming months as the domestic economy moves from the slowdown caused by the global turmoil.

“We are raising our short-term (forex) rating for the Philippine peso to ‘overweight’ from ‘neutral.’ We expect it to gradually catch up with other Asian currencies,” Standard Chartered said.

An “overweight” outlook reflects expectation that a currency would appreciate, while a “neutral” one indicates projection of minimal or sideways movement.