The USD Php closed the week at Php 50! This marks the HIGHEST closing level since November 20, 2008!
While it may be true that the peso reached the 2009 highs at 49.99 THREE times last December, the 50 mark could prove to be the crucial psychological breakout point for the USD peso.
I find it a curiosity how such quotes as indicated by the PDS have been established.
I understand that these PDS quotes have been periodically (intraday) declared by the domestic banking system daily. That’s according to a currency broker.
Last Friday, while Philippine financial markets were open, the USD peso had actually traded at 49.97-50.03 based on online quotes.
Yet, PDS final quote had high of 50, where it closed.
Fascinatingly, post-Philippine financial market trading session, the USD peso closed at significantly past 50. So the opening of the USD peso trade on Monday should be quite interesting.
What’s even more intriguing has been strength of the USD peso which emerged in the face of a mixed performance in the region’s currencies.
The USD has been strong relative to ASEAN currencies (with exception to the Thai baht) whereas the USD has been weak relative to East Asian currencies (see upper chart). The peso was the region’s weakest currency this week, based on Bloomberg’s data.
This shows that the Yellen factor (US Fed chair Janet Yellen told the Senate Banking Committee last week of the need to raise rates in March) either had diverse effects on Asian currencies or that Asian currencies have already discounted much of this so as to suppress the reactions of Asian currencies.
Unlike in 2009, where the USD peso touched 49.99 only once, currently, the USD php has lingered within the 50 level for the past two months plus!
In other words, the USD peso has seemingly been raring to breach the 50 threshold, but something or someone has put a lid each time the assault at such level were made.
I proffered here that the 50 level functioned as the Maginot line, where the BSP could have been net sellers of the USD channeled partly through liquidation of US Treasury holdings. See January 22 email Philippine Peso: Internal Dynamics As The Critical Factor; Why the Peso Will NOT Be Immune to External Forces. More on UST holdings below.
Nevertheless, the pressure on the peso has seemingly been powerful.
Even if I am not a fan of charts, present price actions and patterns have revealed of a manifestly strong bias towards a critical and a massive USD php breakout: an 8 year rounding bottom, and or, a 4 year ascending triangle!
And yet the USD Php appears presently situated at the nexus or has been positioned for such monumental move.
Will a historical breakthrough in the USD Php occur next week?
Or will it fail and instead transmute into a major double top?
Meanwhile, the BSP reported that January 2017 Gross International Reserves (GIR) marginally expanded in January 2017: “Preliminary data showed that the country’s gross international reserves (GIR) rose to US$81.04 billion as of end-January 2017… This level was higher by US$0.35 billion than the end-December 2016 GIR of US$80.69 billion, due mainly to inflows arising from net foreign currency deposits by the National Government (NG), revaluation adjustments on the BSP’s gold holdings resulting from the increase in the price of gold in the international market, and its income from investments abroad. These were partially offset by the payments made by the NG for its maturing foreign exchange obligations and by the BSP’s foreign exchange operations.”
Well, one reason for such expansion has been due to a downside revision of December 2016’s GIR. From theBSP’s December GIR report: Preliminary data showed that the country’s gross international reserves (GIR) stood at US$81.05 billion as of end-December 2016…
So the present January level has even been lower than the old December data. And that’s how growth appears, adjust old statistics lower.
Anyway, to give the benefit of the doubt to the BSP, January GIRs had mainly been due to HIGHER gold prices (upper right pane), and again, to a record pile up of currency derivatives (lowest pane).
Interestingly, UST holdings of the Philippine government, most likely via the BSP, was higher by US $.7 billion in December to US $38.5 billion on a month on month basis (middle pane), but was significantly lower on a year to year basis (red line).
However, GIR data showed that the BSP sold US $ .644 in December
The BSP sold US $.133 billion of foreign investments during the month of January.
Has the moderation in the liquidation of the UST holdings been about the latest borrowings by the Philippine government? Or has the net foreign currency deposits by the National Government in January included theparts of the proceeds from the Philippine treasury’s raising of $ 2 billion 25 year bond last January???
Or has the banking system provided the USD requirements of the financial system in lieu of the BSP???
Interestingly, despite so-called improvements, the peso remains enfeebled.
The BSP also reported the December and the annual 2016 remittances last week.
December growth rate was a slim 3.6% for both personal and cash remittances. What’s interesting has been the annual growth rate which clocked in at a modest 4.9% and 5% respectively. Recall that remittance growth rate spiked 18.4% and 18.5% last November. These numbers were instrumental in driving the annual growth rates at 4.9% and 5%. Otherwise, remittance growth numbers would have been similar with that of 2015.
This shows that even when the BSP cheered on 2016 numbers which it says surpassed its growth projections, remittance growth rate trend has been slowing down.
Unless the Philippine government plans to export a majority of its citizens then this should be expected, as the law of diminishing returns eventually engulfs the OFW dynamic. The only hope is that OFW income rises to offset such diminishing returns.
The sad part is that when risks of protectionism become a reality, then this will most likely adversely impact both OFW exports and income.
Of course, no one also knows of the accuracy of the BSP’s declared numbers.
What can be said has been that the peso continues to weaken despite the positive flows indicated from GIRs and OFW remittances numbers.
This reveals that either these numbers may not be credible or that local dynamics or credit expansion has signified as the more powerful influence in the peso’s ongoing dilemma. And such credit inflation has now percolated into prices in the economy (see next post: Signs of Historic Times? Online Broker Warns of Wild Speculative Punts!)
One must not forget of the influence of the global US dollar shorts too!
I believe that by the yearend, the returns of the USD peso will beat the PSEi for a third straight year.
No comments:
Post a Comment