Currencies

[thepennyking]

Philippine Peso hits new lows on political, fiscal worries
Heavy dollar purchases by corporates and banks -- linked by some traders to election and fiscal concerns -- yesterday pushed the peso down to new lows versus the dollar.

All-time trading, closing and average lows were posted by the peso, which hit PhP56.45 to the dollar early in the day at the Philippine Dealing System, the country's electronic currencies exchange.

It closed at PhP56.42 following brisk trading, down four centavos from Friday's session. The peso averaged PhP56.429 to the dollar, weaker by 10.9 centavos from last week's PhP56.32.

Volume turnover at the spot market jumped to $160 million changing hands from the $117.50 million previously.

Currency traders said follow-through dollar buying was prompted by the peso's breaching the psychological resistance of PhP56.35 on Friday.

"Clients panicked when it hit beyond PhP56.35, although the market was calm that the central bank will provide dollar liquidity. These corporates are buying for their month-end requirements. The PhP56.35 was a very critical level," a market source said.

The peso-dollar rate had been hovering within a familiar range of PhP56.15 to PhP56.35 until it hit an intraday low of PhP56.38 last Friday, which traders also attributed to corporate demand.

"Banks were still covering their short dollar positions since Friday. They have to buy back the dollars they sold to the market. Last week, there was huge corporate order," a trader said.

Lack of substantial inflows exacerbated the peso's fall as inflows of dollar remittances coming from overseas Filipino workers (OFWs) continue to be sluggish.

"When the dollar is up, OFWs tend to anticipate further weakness for the peso. They will sell when the price is attractive to them. They only unload dollars which are enough for daily expenses," a trader from a foreign bank said.

FUTILE DEFENSE

Market players also said the Bangko Sentral ng Pilipinas (Central Bank of the Philippines, or BSP) was not in the market on Friday. "They may have thought it was futile to defend the peso at that time. They thought it would be more costly for them," a source said.

But in yesterday's trading, market players believed the central bank was in the spot market at PhP56.45 to the dollar, allowing the peso to trim its losses towards end trade to close at PhP56.42.

Currency traders said the peso will likely stay at current levels today.

Traders also attributed the peso fall to recent BSP pronouncements that the country's dollar reserves could hit the lower range of target by yearend. Bangko Sentral Governor Rafael B. Buenaventura had said gross international reserves (GIR) could hit $14 billion, the lower end of the target range of $14 billion to $15 billion, due to the government's borrowing mix and budgetary shortfalls.

"Worries on the country's dollar reserves weighed on sentiment," a trader said.

Other traders said political concerns ahead of the May 10 elections also contributed to the decline. Many companies, they said, continued to hedge on future dollar requirements.

Traders also said the BSP's hands-off stance in the market contributed to the decline. Mr. Buenaventura said it was partly due to "corporate demand" for dollars.

Others blamed uncertainties brought about by anticipation of today's scheduled announcement by the government of its budget deficit figures for February.

The Malacañan presidential palace, meanwhile, said it is optimistic that the peso will soon recover as soon as corporate demand for dollars eases and political concerns here and abroad ebb.

Presidential deputy spokesman Ricardo L. Saludo said the BSP will take prudent measures to protect the peso. "Monetary authorities are monitoring the currency market with ample instruments on hand to fight speculators and maintain orderly trading," Mr. Saludo told BusinessWorld. -- Ruby Anne M. Rubio, Iris Cecilia C. Gonzales and Karen L. Lema

http://www.bworld.com.ph/current/TopStories/headline.html