Peso surges on first trading day

MANILA, Philippines - The peso on Monday bounced back against the dollar as financial markets resumed trading after a one-and-a-half-week long Christmas break. But the recovery, mainly driven by remittances that piled up during the holidays, would be short-lived, traders said. The peso surged by 36 centavos to close at P47.16 per dollar, recovering from its 2008 finish of P47.52 per dollar. Remittances, which softened the peso’s free fall last year, yet again drove the local currency Monday as traders got back to work. Financial markets have been closed since Dec. 25 as the Philippines, a predominantly Catholic country, celebrated the Christmas season, described as the world’s longest. The local currency lost 13% against the dollar in 2008, making it one of Asia’s worst performers. In contrast, it notched an 18% gain in 2007. "There were remittance flows left, those that piled up during the Christmas season. It’s only now they’re being converted," said Marcelo E. Ayes, senior vice-president at Rizal Commercial Banking Corp. "Most of the remittance banks were selling this morning," a trader said. Traders added that the rally in US share prices last Friday, which spilled over to Philippine stocks, was positive for the peso. They, however, doubted whether what appeared to be improving sentiment could be sustained in the face of a worsening global economic landscape. "The outlook on stocks is improving globally because of the perception that rates will still go lower. The value is there. It could just be a bear rally. Asia is correcting only. "Export economies, the smaller ones, will suffer more because they don’t have the flexibility in terms of expanding domestic demand," Mr. Ayes pointed out. Monday’s thin trade at only $486.5 million from $564.26 million last Dec. 24 indicated a lack of incentive for the market to bet on the peso, traders said. Mr. Ayes said only a break of the P47-per-dollar level would indicate whether the local currency is in for further appreciation or not. The peso traded from a low of P47.45 to a high of P47.14 per dollar Monday after a strong start at P47.30. "There’s not much trade. The rally might not be sustained. We’ll see," a trader said. Headwinds from expectations of record low interest rates and a wider fiscal gap as the government attempts to give the economy some push are building up against the peso, traders said. "Risk aversion is still not over. We’ll focus again on how the government will balance the budget. Also, the expected rate cuts by the Monetary Board given easing inflation and the still wide interest rate differential will diminish appetite for the peso," a trader said. — Maria Eloisa I. Calderon, BusinessWorld