Peso extends rally, other Asian currencies down

02 Feb, 2005

The Philippine peso climbed to its highest levels in more than a year on Tuesday, before being capped by suspected intervention, on reports the US's biggest pension fund will retain investments in the country. Other Asian currencies were slightly down, despite a listless dollar, ahead of a US policy decision on interest rates, expected Wednesday, and the weekend meeting of the Group of Seven nations. The peso hit 54.870 per dollar in morning deals, its highest since late 2003, providing a gain of 2.6 percent in 3 weeks.
It was extending a rally that began early in 2005, on the back of flows into the Philippines stock market, the passage of some tax reforms, a successful $1.5 billion sovereign bond issue and improved economic data.
On Monday, data showed annual GDP in 2004 grew 6.1 percent, the fastest pace in 15 years.
Tuesday's gains were spurred by a Philippine government statement on Monday saying Wilshire Associates, the consulting firm of the California Public Employees' Retirement System (Calpers), had given the country a passing score "ensuring the country's retention in the Calpers' list of permissible emerging markets".
Although the peso's gains were limited to 54.87 by talk that the central bank was buying dollars, analysts expected more modest appreciation in the currency.
"The BSP (Philippine central bank) has thus far showed that it is happier to see currency appreciation rather than build FX reserves aggressively," UBS strategist Bhanu Baweja said.
"It is likely that they are trying to shift base line expectations on this currency so as to make monetary policy easier to execute in the long term."
Economists at DBS said they had changed their bearish stand on the currency to a neutral view, and expected it to stabilise between 54 and 55 per dollar.
The peso was the sole gainer in Asia as expectations the G7 will once again issue a dull, familiar message calling for global currency flexibility weighed on the regional currencies.
The Indonesian rupiah was the weakest as suspected buying of dollars by oil importers drove it down 0.7 percent to around 9,225 a dollar.
It received little respite from news the government had picked five international banks to manage its $1 billion global bond issue planned for the first quarter of the year.
The Korean won hit 1,029 per dollar, moving away from last week's 7-year peak of 1,023. But the won's decline was more limited than that of the yen, which fell to near 104 a dollar.
The Singapore dollar fell past 1.64 a dollar, shedding over half a cent, as regionals braced for a rate rise in the United States this week and a G7 meeting.
Chinese yuan non-deliverable forwards also moved to price in a lower premium on the yuan.
G7 starts a two-day meeting on Friday in London. "The reality is that the G7 has had the right message on global currency policy since September 2003: Asian policymakers should allow more currency flexibility in an effort to curb the worrying trend in US imbalances," Lehman Brothers said in a note.
"Unless there is a sudden global consensus on a managed decline in the dollar, or China decides to use the G7 platform to announce a shift in its currency regime, both highly unlikely, it is hard to imagine what policy makers can say that is new."
Lehman said it would use any decline in the regionals to add to their long Asia position.
The Asian economic recovery was stronger, inflation was higher and the tolerance for higher currencies was growing, Lehman said.

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