Peso hits 2-month high

The peso yesterday hit a two-month high as it tracked regional currencies that also strengthened after key US employment figures released on Friday boosted expectations that the US Federal Reserve might go slow in tightening monetary policy. The peso opened at P52.15, reached a low of P52.20 and a high of P52.085, before it closed firmer at P52.12, 23 centavos stronger than Friday’s close. It averaged at P52.135 from P52.507. "Last Friday, the US job figures were not as expected so that signaled that the Fed won’t increase rates in the meantime," a dealer from a local bank said. "It was a weak dollar over the weekend across all regionals," another dealer said. The US Labor department’s employment report showed weaker-than-expected job growth, with US employers adding 121,000 jobs in June, well below expectations of a rise of 185,000. Average hourly earnings, meanwhile, were 3.9% higher than a year ago. Dealers noted that with the Fed’s expected pause in its two-year tightening cycle, investors will return to the region’s asset markets. "Given that scenario, hedge funds shift to emerging markets," a dealer said. "The foreign players are selling heavily on the dollars," another trader said. Asian currencies, which began their rally last Friday after suffering from two-day losses on news of North Korea’s missile launches, continued their rise, with the yen leading the gains at a one-month high. Volume of transacted dollars slid to $455 million from $589.2 million. The last time the peso was trading at these levels was on May 12, when it closed at P51.71, said Jonathan Ravelas, Banco de Oro’s market strategist. Asian currencies extended their gains, tracking a rally in the yen, which rose to a one-month high. The currencies were also supported by growing expectations that the Bank of Japan (BOJ) would raise interest rates later this week, for the first time in nearly six years, a move that could boost the yen. The biggest gainer was the South Korean won, which sidestepped geopolitical concerns triggered last week by North Korea’s decision to launch missiles. It rose 0.6% to around 941.80 against the dollar with expectations of an increase in local rates also boosting sentiment. "Dollar/Asia followed the yen’s cue in the wake of the moderate down-scaling of Fed tightening expectations," analysts at Westpac Bank said in a report. "The won led the way, perhaps due to hawkish comments from Bank of Korea Governor Lee, who declared that inflation was likely to accelerate and that the bank would act preemptively to fight it." Last week, the South Korean central bank kept its key target rate steady at 4.25%. After the decision, Bank of Korea Governor Lee Seong-tae signaled the possibility of higher rates in the near future to combat rising inflationary pressures. The Indonesian rupiah extended Friday’s gains to around 9,020 per dollar, its strongest in nearly two months. It has been propped up since Thursday on expectations of foreign investment into a rising bond market after Bank Indonesia said it could cut rates more aggressively if conditions warranted it. Philip Wee, currency strategist at DBS, said the BOJ’s impending rate decision was leading the yen higher and there was a growing correlation between the yen and the rest of Asia. The Singapore dollar rose by 0.4% while the Thai baht gained 0.45% on the yen’s rally. The dollar fell as low as ¥113.47, its lowest in a month, with the market bracing for a quarter-percentage-point hike by the BOJ. A possible rate increase by the BOJ and a likely pause by the US Federal Reserve in its two-year rate tightening spree could see yield-hungry investment flows return to Asian markets, boosting the currencies. Traders said speculation about the Chinese yuan in the run-up to the first anniversary of its revaluation would also support Asian currencies in the near term. The yuan was quoted at 7.9889 per dollar, just off a post-revaluation high of 7.9859 per dollar hit on Friday. "With the first anniversary of yuan exchange rate reform approaching, speculation on further measures to allow more appreciation and/or volatililty is rife," Standard Chartered Bank said in a daily report. The yuan is allowed to move 0.3% each day either way against the dollar although, in practice, it does not move that much. -Maria Eloisa I. Calderon, Business World with Reuters