THE Philippine peso rebounded on Wednesday, back at P58 levels after slipping past P59, as profit-taking persisted and seasonal dollar inflows picked up ahead of Undas and the start of holiday-related spending.
The local currency closed at P58.69 to the United States dollar after opening at P59.15, and traded for as high as P59.25 and as low as P58.65, based on data from the Bankers Association of the Philippines.
Some economists attributed the strength of the peso to investors’ profit-taking, locking in gains before selling the currency after the exchange rate breached the P59 level on Tuesday.
‘The peso’s recovery today, after breaching 59 PHP/USD yesterday, looks like a technical rebound as some investors used the weaker level to sell dollars,’ Moody’s Analytics economist Sarah Tan told BusinessMirror.
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corporation, said the peso reaching the P59-mark may have triggered some healthy profit-taking or stop loss orders, as an ‘effective way’ to discourage any undue speculation.
Sun Life Investment Management and Trust Corporation President Mike D. Enriquez told BusinessMirror that the correction was a combination of some profit-taking and possible conversion of foreign investors of their US dollars to Philippine peso for their Maynilad IPO payment.
‘We also expect remittances from overseas Filipino workers [OFWs] to help stabilize the Philippine peso towards December,’ Enriquez said.
According to Ricafort, the recent depreciation of the peso made it more attractive for some OFWs and other US dollar earners to convert their greenbacks ahead of the Undas weekend and holiday-related spending.
Bank of the Philippine Islands lead economist Jun Neri said the peso depreciated due to a combination of rising oil prices, the central bank’s dovish stance and net foreign selling in the local stock market.
With inflation at manageable levels, Neri said the Bangko Sentral ng Pilipinas (BSP) might see the recent depreciation as ‘tolerable.’
‘It might not be a concern from their perspective as long as the inflation forecast for the next two years remains within the target,’ Neri said.
‘Also, allowing the Peso to weaken might be a strategic move for them since a weaker Peso could support growth and household spending through its impact on remittances,’ Neri added.
Technical indicators suggest the local currency might be in oversold territory, which means a correction or a sideways movement is possible, Neri said.
A continued appreciation of the peso would depend on the BSP’s intervention or smoothing any volatility, Ricafort said.
‘Seasonal increase in OFW remittances and conversion would also help support the peso seasonally towards the end of the year,’ Ricafort added.
Economists also cited expectations that the US Federal Reserve would cut interest rates, which could weaken the dollar and, in turn, support emerging market currencies, such as the peso.
Enriquez said the peso against the dollar may stabilize near the P58.50 level as the Fed is anticipated to adjust its policy rates lower.
‘The Fed is expected to cut rates amid better-than-expected inflation print in the US. Rate cuts from the US side may cause the dollar to slightly weaken against the peso,’ Reinielle Matt Erece, economist at Oikonomia Advisory and Research, Inc. told BusinessMirror.
Despite all these factors that could strengthen the peso, Erece said developments in the political and economic landscape, such as anti-corruption reforms, investment or business reforms, are important in stopping the bleeding of capital from the country.
‘Too much capital outflows, e.g., foreigners selling off shares, investments pulling out, may be the primary cause of the falling peso,’ Erece added.