The local currency the peso flirted briefly with a crisis-grade exchange rate of 50 per dollar on Thursday, as external events hounded the regional currencies and bullied currency traders into taking dim views.
Thursday’s events would force the local currency to close a wee bit short of 50 per dollar at 49.98, or 12 centavos weaker than its closing rate of P49.86 per dollar the previous day.
The day’s trades saw the currency at its weakest in eight years at 50 per dollar during the day and strongest at no more than 49.91 per dollar.
The total traded volume aggregated higher on Thursday at $437.6 million compared to the previous day’s $360.5 million.
Finance Secretary Carlos G. Dominguez III said the local currency’s 50-per-dollar breach was in reaction to the anticipated interest rate increase by the US Federal Reserve (the Fed). Dominguez also said the peso moved in tandem with other Asian currencies on Thursday.
Finance (DOF) Undersecretary and chief economist Gil S. Beltran said the peso was just “normalizing”.
“It was 57 per the US dollar in 2004. All other currencies are moving in the same direction,” Beltran said.
As a result of these developments, fiscal sector officials vowed keen and sustained monitoring of currency movements. Nevertheless, officials said the economy’s rock solid macroeconomic fundamentals should be enough buffer, allowing the economy to weather the anticipated US interest hike and the stronger dollar.
In Manila ING Bank economist Joey Cuyegkeng said that, aside from worries on the Fed rate hike soon, expectations of another 50 basis-point hike in 2017 by the world’s largest economy is also worrying investors.
“Markets remain on edge over likely US trade and jobs policies and fiscal spending by next year. External risks also include the Brexit negotiations, China growth and leverage concerns and the European Union stability,” Cuyegkeng said.
Local factors investors are looking at the liquidity impact of cutting access by trust accounts to the central bank’s term deposit window, as well as the underlying political undercurrents as market participants are already “cautious despite the relatively favorable economic
fundamentals.”
These domestic concerns, however, were relegated to the background as external pressure and events become more dominant.
“In an environment of uncertainties, market participants have been slowly increasing US dollar portion of holdings for future foreign-exchange payments and servicing and for alternative investments,” Cuyegkeng said.
“We are closely watching developments for now and retain our year-end 2016 P49.50 forecast,” he added.
In July the Cabinet-level Development and Budget Coordination Committee pegged the peso at 45 to 48 per dollar this year.