Peso at weakest level this year: Fall driven by geopolitical risks, Korea tensions

MANILA, Philippines - The peso closed yesterday to its weakest level this year after investors shunned risky assets due to tensions in North Korea and after Japan announced it is ramping up asset purchases to fight deflation.

The local currency ended trading at 41.15 to a dollar, declining by 24.5 centavos from its Wednesday’s close of 40.905. Dollars traded amounted to $1.122 billion, up from $920.2 million previously.

This was the second time the unit closed at the 41-to-a-dollar territory this year after touching the 41.07 level last March 26.

“It’s mostly driven by external developments, primarily geopolitical risks and tensions in North Korea,” said Emilio Neri Jr., economist at Bank of the Philippine Islands, in a phone interview.

Tensions between North Korea, South Korea and the US heated up yesterday, after the hermit kingdom issued fresh statements threatening a nuclear attack to the US mainland and its allies.

A spokesman for Democratic Republic of Korea was quoted as saying that the “moment of explosion is approaching fast.” This was followed by reports saying the country has banned South Korean workers from entering the joint industrial Kaesong complex.

Aside from news in North Korea, Japan’s announcement that it is doubling asset purchases to fight deflation and revive the world’s third largest economy also caused regional currencies to weaken.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said the Bank of Japan’s decision to double purchases to seven trillion yen from 3.4 trillion yen— under its new head Haruhiko Kuroda— reverberated across Asia.

“The yen approached the 95.50 level versus the dollar at around noon and because of that movement, other currencies in the region also moved versus the dollar,” Ravelas said in a separate phone interview.

For today, both Neri and Ravelas see the peso remaining at the 41 to $1 level with the latter predicting “more room to depreciate.” Ravelas predicts the peso to end the year at 42.10 against the greenback.

The peso, Asia’s second best performing currency last year, appreciated by 0.6 percent in the first three months of the year, according to central bank data. It has traded at 40 to $1 level for most of the year so far.