What?
The Philippine peso fell the most since September 2012 last Friday, ending the week at 41.12 to the US dollar. But, the currency has been gaining against the dollar for the past several years and it’s too early to tell whether last week’s price action is the beginning of a reversal of that trend. Investors will be watching closely.
Why?
A new surge in the dollar is helping push down all Asian currencies. Continued improvement in the US economy along with further easing of monetary policy by the Bank of Japan is likely to continue to benefit the dollar and weaken the peso further. Concerns grew last Friday that the US Federal Reserve will slow its asset purchase program given a better than expected jobs report. The yen dropped further to a new recent low against the dollar triggering weakening across Asian currencies as investors worried about more competition from Japan as their exports grow cheaper.
What next?
Financial markets in Philippines are closed on Monday for a holiday while the country holds elections for local government, the House of Representatives and part of the Senate. This will likely dampen activity in the peso for Monday. The Philippines is the world’s 45th largest economy and expected to grow 6.0 per cent this year after 6.6 per cent growth last year. Exports make up less of the economy than some other Asian countries with 70 per cent of GDP coming from domestic demand. This may help dampen the impact of a strengthening dollar.
What to do?
This could be the beginning of a trend reversal with the Philippine peso, seeing further weakening as the dollar strengthens further. The next resistance level of note for the USD/PHP currency pair is at 41.44. A move above that level increases the odds for higher prices. Support is at 40.48 with a decline to that price level triggering further strengthening of the peso.
