Peso extends rise to P41.58; BSP tries to stem its ascent

REPORT FROM BUSINESSWORLD THE PESO on Monday hit a fresh seven-and-a-half year record against the dollar as dollar remittances from Filipinos working overseas continued to come in and after US job data boosted risk appetite ahead of a US Federal Reserve policy decision. Most Asian currencies appreciated against the dollar, with the exception of the Taiwan dollar and the won. The highest climber was the peso, which rose by 0.4% in a day. It closed at its intraday high of P41.58, 16 centavos stronger than Friday’s finish of P41.74 per dollar. The last time the peso hovered around this level was on May. 15, 2000, when it closed at P41.474 per dollar. The local currency started trading at P41.69 and reached an intraday low of P41.715 as large corporations were spotted buying dollars, while some investors covered their short dollar position. But the peso surged to the day’s close as investors priced in large volumes of dollars coming in for the rest of the year, a currency trader said. "It’s a thin trading and the market was in a consolidation mode in the morning. The peso has gone too far and technically, it’s due for a correction," the trader said. "But the market is expecting more inflows for the rest of December, so investors do not want to hold on to their dollars," he added. BSP intervenes The Bangko Sentral ng Pilipinas (BSP) was suspected of intervening by buying dollars, persisting in its efforts during the past few weeks to rein in the currency’s rise. The central bank has said it would announce new foreign exchange rules this week. They will include raising the limits for allowing foreign currency to flow out of the country. "I think the BSP is intervening. But volume is very light today, so it’s difficult to tell if BSP is buying dollars," another trader said. Strong dollar inflows prevented the peso from reflecting the weakness of Asian stocks, particularly the local bourse, which slid as investors took profits. Asian stocks weakened as a result of Wall Street’s fall after strong US job data released on Friday erased expectations of a 50-basis-point (bps) rate cut by the US Federal Reserve when it meets tonight. "Markets were already factoring in a 50-basis-point rate cut, but expectations were gone," another trader said, adding that the strong employment data indicated there was a slowdown in the US economy, but not a recession. This prompted markets and investors to realign their currency position, he said. The peso is expected to move depending on the state of New York stocks. While the absence of any market-moving news may push the peso to P41.40 per dollar, a correction may occur as investors take profits at the psychological level of P41.50. "The peso has appreciated by more than a peso since end-November. There must be a correction anytime soon," the trader said. The peso gained 3.9% in the past month and by almost 18% this year against the dollar. On Monday, it averaged at P41.658, better than Friday’s P41.745. Total volume rose to $466 million from $306.5 million. Chin Loo Thio, a currency strategist with BNP Paribas, said market participants had discounted a 25-bps Fed rate cut on Tuesday. "A 50-bps cut would be a greater surprise that could lead to some stock gains and positive Asian currencies," she said. Ms. Thio said the Fed’s statement accompanying the rate decision would be closely watched by markets. "I don’t expect them to reveal much, and to maintain a neutral tone between growth and inflation," she said. Asian forex strengthen Meanwhile, the Malaysian ringgit and the Singapore dollar trailed the peso’s gains with rises of about 0.2%. The won fell by half a percent to 923.5 per dollar, undermined by the expectation of investment outflows from the country after Korean construction group Eugene said it was buying electronics and appliances retailer Hi-mart from a consortium, including Hong Kong-based Affinity, for 1.95 trillion won. The Chinese yuan was steady around 7.395 per dollar. But in nondeliverable forwards, the currency rose to indicate a near 9% appreciation in the next 12 months to 6.79 per dollar. That, traders said, was after US Treasury Secretary Henry Paulson, speaking ahead of a trip to China this week, said China had stepped up the pace of appreciation of its currency but should allow it to rise even more quickly. On Saturday, China aggressively tightened monetary policy by announcing its 10th rise in reserve requirements this year for banks and by a larger than usual 100 basis points. Analysts at JPMorgan Chase said the yuan would be an unpredictable factor in Asian currency trading this week, given the monetary tightening, Mr. Paulson’s visit and China’s trade surplus data due this week. — Gerard S. dela Peña/BusinessWorld