Peso over a dollar in the midst of the covid-19 pandemic?

October 26, 2021

On Friday, the peso rose against the dollar as the country continued to see fewer cases of the coronavirus illness in 2019 (COVID-19) and as hopes grew that a vaccine will be available in the United States by next month.

According to data from the Bankers Association of the Philippines, the local currency finished at P48.395 against the US dollar on Monday, up 8.5 centavos from Friday’s closing of P48.48.

Monday’s session began with the peso trading at P48.42 per dollar, its lowest level of the day. Its intraday high was P48.36 against the US dollar. Dollar trades fell to $671.25 million on Monday, down from $889.6 million the day before.

A relatively slower pick-up/recovery in imports, which results in smaller trade deficits of around USD1 billion-USD2 billion per month since the Covid-19 epidemic.

Increased infrastructure spending, on the other hand, “could also lead to some pick up in importation for construction materials, capital equipment, and other inputs, by contractors/suppliers for the various infrastructure projects,” which “could also lead to some pick up in importation for construction materials, capital equipment, and other inputs, by contractors/suppliers for the various infrastructure projects.”

Reasons for drastic growth

The country’s excellent balance-of-payments (BOP) position and rising gross international reserves are the major factors for the peso’s increasing strength and stability (GIR).

The robust BOP situation was aided by substantial foreign exchange inflows from service exports, remittances, income from overseas investments, direct foreign investments, and foreign borrowing. The Philippine peso’s confidence was boosted as a result.

A poor economy helps to boost the best-performing currency

The Union Bank of the Philippines’ top economist, Ruben Carlo Asuncion, underlined how swiftly currency trends shift in these turbulent times.

Researchers were expecting USDPHP (dollar-peso) pricing to stay above the P50 level earlier this month, but as of yesterday (August 31), I am not so confident in that expectation,” he explained.

While the peso-dollar exchange rate has stabilized, Asuncion believes the expectation of depreciation has turned to appreciation. The peso-dollar exchange rate is projected to remain below P50:$1, with one of the key factors being the dollar’s weakness.

The US Fed (United States Federal Reserve) is expected to remain dovish until the Delta variant and pandemic perse clouds begin to disperse and eventually evaporate, according to the market. Until then, we might have to settle for USDPHP levels below 50.

The peso, on the other hand, is tracking regional advances, according to ING Bank Manila senior economist Nicholas Antonio Mapa, as emerging market currencies take advantage of the recent US dollar fall connected to altered expectations for the ultimate Fed taper.

“We expect the PHP (Philippine peso) to once again take cues from global happenings, with the local unit perhaps resuming its depreciation trend as the Fed is expected to publish specifics on its tapering asset purchases,” he said.

Meanwhile, Michael Ricafort, chief economist of Rizal Commercial Banking Corp., noted that major signals for peso-dollar trading for September include anticipated granular lockdowns at the barangay (village) level.

More eased quarantine regulations in the National Capital Region could influence foreign exchange transactions and lead to a pick-up in some economic activity, he added.

Other important local drivers, according to Ricafort, include a rise in Covid-19 vaccine arrivals and administration; any changes related to the national elections in 2022; and holiday preparations, which stimulate seasonal increases in exports and remittances.

“Any Fed (United States Federal Reserve) decision on the tapering of bond purchases would still be examined as a function of economic recovery, particularly US jobs/employment data to justify any decrease of the Fed’s bond/asset purchases,” he added.

The Philippine peso slipped back into the P50:$1 area on Wednesday. The local unit fell 31 centavos to P50.07:$1 after opening at P49.73:$1. The peso completed the last trading day of the year at P48.02 per US dollar, its highest close in almost four years.

This year, the government anticipates a peso-dollar exchange rate of P48 to P53.


Graph for Peso Since last year

Changes in the peso-dollar exchange rate are a perplexing, if not deceptive, indicator of the state of the economy. A stronger peso isn’t always a good thing, and a weaker peso isn’t always a bad thing. Rather than obsessing over exchange rate fluctuations, we should concentrate on increasing Filipinos’ earnings and bringing the recession to an end as soon as possible.

First and foremost, we must continue to put pressure on the government to handle the pandemic. The eradication of COVID-19 will determine the fate of our economy. At the same time, we need the government to invest aggressively on economic aid to help not only displaced OFs and the poor, but also the tens of thousands of enterprises on the verge of bankruptcy.