Peso lowest in nearly 6 months amid bad news from US, China

MANILA, Philippines - The peso slumped to its weakest level in nearly six months on Thursday after investors shun risky assets from Asia due to bad news that emanated from the world’s two biggest economies, the United States and China.

The local unit closed at 41.69 to a dollar, the weakest close since Oct. 1, 2012 when trading ended at 41.76 versus the greenback. It plummeted by 51.5 centavos from Wednesday’s 41.175. 

Dollars traded reached $1.346 billion, higher than previous day’s $649.7 million. 

Emilio Neri, Jr., economist at the Bank of the Philippine Islands, said regional currencies all dropped in value after US Federal Reserve Chairman Ben Bernanke signaled a possible withdraw of stimulus measures in the US.

“The sentiments shifted from risk on to risk off with the negative sentiment emanating from the unwinding its QE (quantitative easing) earlier than projected,” Neri said in a phone interview.

During his testimony before the US Senate, Bernanke said that Fed’s policies of keeping rates near zero and buying $85 billion worth of securities every month is “providing benefits” to the world’s largest economy.

He said any “premature tightening” may prompt a “slowing or ending the economic recovery” which has been going on for five years now. The global financial crisis of 2007 began when US investment bank Lehman Brothers collapsed.

While Bernanke’s statements may have calmed the market, minutes of the Federal Open Market Committee meeting released later on the day showed that some members wanted to “adjust the flow of purchases downward.”

In a briefing, a senior official of the Bangko Sentral ng Pilipinas (BSP) said that should US unwind its stimulus measures due to its recovery, it should be expected that capital inflows may return to the US.

“Risk aversion will recede and that means the propensity of capital inflows to emerging markets like the Philippines will start receding as well,” BSP Deputy Governor Diwa Guinigundo told reporters. 

“The BSP is always ready to deploy appropriate policy response to these developments,” he added.

Meanwhile, in addition to the bad news from the US, the contraction of China’s manufacturing sector for the first time in seven months “aggravated” the situation, Neri said.

According to the preliminary HSBC Purchasing Managers Index, China’s factory output dipped to 49.6 in May. A figure below 50 indicates a contraction.