Peso strengthens on profit-taking

Fund managers on Friday took in profits after the peso closed at its weakest for the year a day previous, prompting the Philippine unit to strengthen anew. 

 

The local unit ended trades at 41.595:$1, gaining 9.5 centavos from 41.69:$1 Thursday—the weakest close since last October 1's 41.76. 

 

“Yesterday's close was somewhat exaggerated,” a trader said. “Today's close is correction rather than a downward trend” for the dollar. 

 

Investors were spooked by the US Federal Open Market Committee minutes indicating that some members want the bond buy-back program—or quantitative easing (QE)— to start tapering off as early as June

 

The hint prompted investors withdrawing away from emerging market's like the Philippines and turning into the dollar investments. 

 

A second trader said that the situation on Thursday allowed some fund managers to cash in on gains. “The peso recovered on profit-taking, coupled with some squaring-off of weekend remittance flows,” the trader added. 

 

He said volume was light on Friday at $742.100 million, almost half the $1.345 billion Thursday.

 

Bank of the Philippine Islands economist Emilio Neri Jr. said an end to QE may signal some easing in portfolio flows, allowing the Bangko Sentral ng Pilipinas to lessen the cost of intervening in the foreign exchange market. 

 

“It's really hard to pin down whether unwinding the QE will really result in risk-off sentiment to emerging markets and peso volatility. But the central bank will have some less of a problem in sterilizing portfolio flows,” Neri told GMA News Online in a telephone interview. 

 

On Thursday, central bank Deputy Governor Diwa Guinigundo told reporters “an early normalization” of the US Federal Reserve's policy will “moderate flow of speculative capital.”

 

Excessive flows of portfolio investments—which cause volatility in the exchange rate—have worried various central banks, including Bangko Sentral. 

 

Next week, traders see the peso moving in a wide 41.30-41.90 range. “It's going to be more volatile next week,” the first trader noted. 

 

The second trader said the market will find leads next week  in the end-month corporate requirements as well as the release of Philippine first quarter gross domestic product data. — VS, GMA News