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Sunday, November 11, 2007

Philippine Peso surges to 42.79 equivalent to $1.00

Peso surges to 42.79: $1
OFW money, weak dollar send peso to new 7-yr high

By Doris Dumlao
Last updated 00:15am (Mla time) 11/10/2007

Close this MANILA, Philippines--THE PESO on Friday breached the crucial 43-to-$1 psychological barrier, surging to a new seven-year high of 42.795 on strong foreign exchange inflows and the continued decline of the United States dollar over the US Federal Reserve chair's grim view of the US economy.

Now Asia's best performing currency, the peso opened at an intra-day low of 43.19 and closed near the intra-day high of 42.67 against the US dollar. The peso gained 51 centavos from Thursday's finish of 43.305 against the US dollar.

The US dollar hit a new record low against the euro and multi-year lows against other currencies after Fed chair Ben Bernanke's remarks on an expected US economic slowdown stoked expectations of another US interest rate cut in December.

A potential cut in interest rates by the US Fed will make high-yielding assets from emerging markets like the Philippines more attractive to offshore investors.

Traders said expectations of heavy foreign fund inflows into the stock market, remittances from Filipino overseas workers and the US dollar's broad weakness had boosted the peso.

They said the peso's sharp appreciation was even tempered by the central bank's dollar purchases from the open market. They estimated that the Bangko Sentral ng Pilipinas' intervention accounted for about half of the $759.5-million volume at the Philippine Dealing System.

The BSP has been intervening actively to slow the peso's gain to ease the pain of a strong peso on exporters and overseas Filipino workers. The Philippines' foreign exchange reserves have jumped 41 percent so far this year.

But analysts also suspect the central bank is happy to see the currency appreciate slowly, to alleviate the pressure on inflation from rising food and crude oil prices.

"The dollar is basically weak to start with," said Reevie Vergara, treasurer of the state-owned Land Bank of the Philippines.

"There seems to be a majority in the market speculating that there will be a [US] Fed cut before the year's end although I personally think that they may postpone the rate cut," Vergara said.

OFW cash flows

Another factor in the peso's strong surge is the expectation that remittance flows would reach frenzied levels as the Christmas holiday season approaches.

"The earlier they [OFWs] send money, the better for their families especially because they expect a further US dollar depreciation," Vergara said.

The fourth quarter is a strong season for overseas remittance inflows ahead of Christmas, the country's longest and most extravagant holiday.

Coupled with dollar inflows expected from the resurgence of foreign portfolio investments into the stock market and the expected privatization of the government's controlling stake in the PNOC-Energy Development Corp., traders are even seeing 42.50 now.

"We're looking at 42.50:$1 next week," said Jonathan Ravelas, chief strategist at Banco de Oro-EPCI.

"Only a move above the 43:$1 levels would suggest a near-term reversal is in place," he said.

Large inflows were also expected following the sale by food and beverage giant San Miguel Corp. of its Australian investments in dairy, juice and beer to raise nearly $3 billion.

The government will bid out on Nov. 21 its 60-percent stake in the PNOC-EDC, the country's largest producer of geothermal energy. The privatization, through which government hopes to raise more than $800 million to meet its deficit target for the year, has attracted foreign companies, including large Japanese conglomerates.

Edging out rupee

The peso has gained by more than 14 percent since the start of the year, edging out the Indian rupee, the region's strongest currency in earlier months.

This week alone, the peso rose by about 2 percent.

Because of the currency's strong rise, there is a growing expectation in the domestic market that the BSP would also cut its benchmark interest rates during the central bank's next policy rate-setting on Nov. 15.

Other Asian currencies had far smaller gains. The Indonesian rupiah rose 0.35 percent to levels around 9,115 per dollar, the Singapore dollar was flat and the Malaysian ringgit gained a quarter of a percent to 3.3210 per dollar.

With a report from Reuters

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