Traders said expectations that the peso will appreciate further after the polls also led to dollar-selling.
At the Philippine Dealing System (PDS), the peso closed at 55.620 to the dollar, the day’s high and its strongest finish since Jan. 21, when the local currency closed at 55.560 to the dollar. It traded at a low of 55.830 to $1.
The large volumes seen last week continued yesterday, with total trades amounting to $182.5 million.
Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said the strong dollar inflows were supporting the recovery of the peso, with even more OFWs opting to send in their dollars before the peso appreciates further.
"A lot of them decided to hold on to their dollars when the peso was down because they are expecting a freefall," Buenaventura said. "Now that the fear of a freefall has disappeared, they’ve started remitting again."
Dealers said despite news that opposition candidates Fernando Poe Jr. and Panfilo Lacson are to hold unification talks to try to ensure Mrs. Arroyo’s defeat, the market thinks the possibility of the opposition uniting is still remote, given that neither Poe nor Lacson is willing to step down.
"The GMA factor is still behind this, as well as the projections that the peso will recover back to 54 levels after May 10," a commercial bank dealer said.
Buenaventura, on the other hand, said the peso is likely to remain stable provided there were no more internal or external shocks that would impact on investor confidence and perception.
"We were only paying a political premium anyway," Buenaventura said. "As long as these political concerns are under control, this premium would erode over time until we reach the true value of the peso."
Although the presidential elections is not until May, Buenaventura said the campaigns have taken on a rhythm that could be described as routine.
News of a drive-by shooting on Sunday on the headquarters of the local unit of Royal Dutch Shell Group in the Makati financial district had no negative impact on the currency market, unlike the equities market which ended marginally lower today amid security and pre-election jitters.
The military blamed the communist New People’s Army or leftist groups allied with the communists for the attack, which may have been intended as a protest against oil price hikes.
Another dealer said there was market talk that the BSP was in the market buying dollars, but this could not be confirmed immediately with the central bank.
But the first dealer said: "I think it is a good idea for the central bank to buy more dollars on the market to replenish the bullets it spent during those days that it opted to defend the peso with its dollars."
The dealers added that although most financial markets are awaiting two speeches by US Federal Reserve Chairman Alan Greenspan this week, which are expected to give further clues to prospects for an interest rate hike in coming months, the local market is less concerned now about higher rates going forward.
"Interest rates are less volatile than the foreign exchange rate, and I think keeping interest rates low is what is needed now to spur economic growth in the Philippines," one dealer said.
The dealer, however, noted that there is growing skepticism in markets about a possible early interest rate hike in the US, given indications the world’s largest economy is recovering.
This means less pressure on the BSP also to raise key interest rates.
Dealers said the peso may next test psychological barriers such as 55.50 and 55 to the dollar.