The local currency, the peso, displayed strength on Thursday when it averaged 14.8 centavos higher to 46.125 per dollar at the local currencies market, or the Philippine Dealing System (PDS).
However, ING Bank Manila economist Joey Cuyegkeng immediately issued a warning that some of the peso’s strength could prove only temporary.
Data from the PDS show the peso exchanging at the close for only 46.11 per dollar on Thursday or stronger by 3 centavos than the 46.14 per dollar the previous day. The peso steadily trended higher since Monday.
“Market takes a more cautious stance after the recent significant strengthening of peso and other Asian currencies. Minutes of the FOMC [Federal Open Market Committee] meeting last month may provide some clues of how close the FOMC decision could have been in raising policy rates in September and of the likelihood of a December 2015 rate hike,” Cuyegkeng said.
But no matter the strengthening outlook of the local currency going forward, Cuyegkeng said its strenght down the line is paved with downside risks.
“There are still risks ahead with the Fed rate hike still expected in the next six months. The IMF [International Monetary Fund] also warned of the substantial over borrowing of emerging market, or EM corporations and that commodity prices remain low despite the recent bounce that also supported the recovery of EM financial assets,” Cuyegkeng said.
“The strength could be temporary,” he reiterated. The volume of trade at the PDS on Thursday moderated to only P936.7 million, sharply down from trades aggregating P1.242 billion on Wednesday.
According to published data, the local currency averaged 46.82 per dollar the past eight years and was reported at its weakest in October 2004 when it averaged 56.34 per dollar.
The same set of data show the peso at its strongest in May 1999 when it averaged 37.84 at the local currencies market.