MANILA, Philippines — The peso closed yesterday at its strongest level in more than four years, propped up by positive sentiment in global stock markets as Democratic candidate Joe Biden moves closer to victory as the next US president.
The local currency gained nine centavos to finish at 48.22 to $1 from Thursday’s 48.31, as traders also anticipate an economic recovery in the third quarter after a record contraction in the second quarter.
This was the strongest level of the peso since closing at 48.19 on Oct. 24, 2016. The peso remains the best performing currency in the region, gaining 4.8 percent since closing at 50.635 in end-2019.
The peso opened stronger yesterday at 48.27 and weakened to an intraday low of 48.3 before closing at an intraday high. Volume increased by 17.7 percent to $779 million from $661.87 million.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the impending Biden victory boosted global stock markets, resulting in a weaker US dollar against major global currencies to two-month lows, with less demand for the greenback as a safe haven amid improved risk appetite especially in emerging markets such as the Philippines.
“A victory by Joe Biden is expected to be good for the Philippines and the rest of Asia, with less US-China trade war and increased trade and economic growth, more US stimulus or government spending that lead to faster economic recovery in the US and worldwide since the US is the world’s biggest economy and among the biggest trade partners of the Philippines,” Ricafort said.
He said more relaxed immigration policies especially for Filipinos could help increase remittances from overseas Filipino workers (OFWs), while less protectionist policies could encourage greater outsourcing for the Philippines, both resulting in stronger foreign exchange inflows.
Ricafort said market gains recently also supported by still relatively benign inflation and exports surprisingly back to pre-pandemic levels among record highs as many countries worldwide re-opened further.
The Philippines slipped into recession with a record 16.5 percent gross domestic product (GDP) contraction in the second quarter, from 0.7 percent in the first quarter, due to the impact of the COVID-19 pandemic.
“The latest decline in new COVID-19 local cases to 1,000 levels also led to the latest gains in the local financial markets, including the peso,” Ricafort said.
Ricafort said the peso is seen trading at a range to 48.05 to 48.35 levels next week as the government is set to release the GDP data for the third quarter.
For his part, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the peso would continue to remain stable on the back of the country sound macroeconomic fundamentals.
“The peso will remain stable for a long, long time,” Diokno said.
The BSP chief said he expects the Philippine economy to return to pre-pandemic level by 2022 after bouncing back with a GDP growth of 6.5 to 7.5 percent next year.
Economic managers are now expecting the GDP to shrink by 4.4 to 6.6 percent instead of only two to 3.4 percent this year.
“We expect the economy to bounce back by maybe between 6.5 and 7.5 percent but that means we have not yet fully recovered. Full recovery will take place in 2022,” Diokno told reporters last Thursday.