Peso touches over 41/2-year high of 49.66 to a dollar

The peso hit its highest level in over four-and-a-half years during intraday trading yesterday, rising to 49.660 before leveling off at the end of the session to close at 49.720 to a dollar.

Traders said the peso got a boost from the overall weakness of the dollar which took a beating overnight as investors adjusted their positions ahead of the long Thanksgiving Day holiday.

At the Philippine Dealing and Exchange Corp. (PDEX), the peso hit an intraday high of 49.660, its highest since it last touched the 49.250 to $1 intraday level on April 22, 2002. Yesterday’s close was also the highest in three weeks.

HSBC Holdings Plc raised its forecast for the peso, predicting it will rise to 49.50 to the dollar this year. The bank expects the currency to end 2007 at 47 to $1, the strongest since January 2001. HSBC’s previous forecasts were for 52 for both periods.

"Expectations of rising remittances are at the core of further peso strength," wrote HSBC currency strategists Richard Yetsenga and Virgil Esguerra, both based in Hong Kong, in the report. "Record December remittances will be the main focus in the next month."

The Bangko Sentral ng Pilipinas (BSP) said the peso also gained momentum from expectations of strong dollar inflows from overseas

Filipino workers (OFWs) during the holiday season.

OFW remittances normally surge during the holidays and this year, the push is expected to come early since workers abroad are also expecting the peso to strengthen towards the end of the year. At yesterday’s trading, volume turnover amounted to $357.80 million on an average rate of 49.689 to $1.

BSP Governor Amando M. Tetangco Jr. said the weakness of the dollar was a large factor in yesterday’s run but there were also widely positive sentiments in the market.

The BSP has already upgraded its foreign exchange rate assumption for 2006 to 50 to 52 from the previous 51-52 to the dollar.

This meant that all macro-economic projections are based on the assumption that the peso would be trading within this band.

The peso has appreciated by six percent since the beginning of the year but monetary officials said the currency was on the lower end of the range when compared with other currencies in the region.

Amid worries over loss of competitiveness against the country’s main competitors in the region, officials pointed out that if other currencies were moving in the same direction, the competitive positioning should be more or less the same.

The BSP said the peso went up over the nine and a half month period but so did the Thai baht which went up by 9.9 percent and the Indonesian rupiah which went up by 7.3 percent.

The only currencies that did not surge as fast as the Philippines were the Singaporean dollar which went up slightly slower by 5.9 percent and the South Korean won which appreciated by 5.7 percent during the period.

Tetangco said the volatility of the peso was also in the middle of the range when compared with the same basket of currencies.

Thus far, Tetangco said the peso volatility rate was charted at 1.8 percent average from year to date, compared with two percent volatility rate for the Thai baht, two percent of the Indonesian rupiah, 1.4 percent of the Singaporean dollar and 1.4 percent for the Korean won.

In 2005, Tetangco said the peso’s volatility rate was recorded at 1.5 percent. At the time, the Thai baht was at 2.8 percent, the Indonesian rupiah was at 3.5 percent, the Singaporean dollar was at 1.4 percent and the Korean won at 1.5 percent.

But Tetangco said there has been little need to support the peso at any level since its movements have been based on the country’s economic fundamentals.

"What we would consider volatile that needs intervention depends on the market," Tetangco said. "That’s why we have to look at the comparative data."