Peso Emerged As Asia’s Best Performing Currency In February

Peso Emerged As Asia’s Best Performing Currency In February

The Philippine peso has emerged as Asia’s best-performing currency in February after it defied a yawning current-account deficit.

The peso is among Asia’s biggest turnaround stories, as the currency bounced back from a 13-year low after a slew of economic reforms and a $170 billion infrastructure spending plan revived sentiment. Proactive central bank policy has also helped win over skeptics. The peso was among the hardest hit in the emerging-market sell-off last year, tumbling to a 13-year low of 54.41 in October as investors punished economies running current-account deficits.

According to an economist at Rizal Commercial Banking Corp in Manila, Mike Ricafor, the peso has been stronger recently and could continue to outperform in the region, amid sustained net foreign portfolio investments on a widely expected further declining trend of local inflation.

The Philippine currency strengthened 0.8 percent in February to 51.70 per dollar, the best performance among Asian currencies. It has climbed since the start of the year, as a pause in Federal Reserve tightening and easing global trade tensions fueled demand for developing-nation assets.

However, the dollar-peso currency pair remains in a bear trend, hovering above initial support at 51.90, its Feb. 13 low. The pair’s slow stochastics, a momentum indicator, signals that it may drop further in the near term.

Sentiment toward the peso has recovered even after the central bank forecast the nation’s current-account deficit will widen to 2.3 percent of gross domestic product in 2019, the biggest shortfall since 2001. The recent rebound in crude prices threatens to worsen the gap, as the Philippines imports almost all its oil requirements.

Investors are betting on the peso after foreign investment into Philippine stocks and bonds recorded a net inflow of $763 million in January, more than four times the level a year ago. Remittances from Filipinos working abroad climbed to an all-time high of $2.85 billion in December.

Consumer-price gains have eased to a one-year low of 3.8 percent in February. Price pressures have waned since touching a nine-year high in September, thanks to government measures to boost food supplies.

The Philippines was among top 10 best-performing global sovereign bond markets in February.

This bodes well for peso government bonds, which gained 0.4 percent in February, the seventh-best performer among 34 sovereign markets tracked by Bloomberg.  

But for peso bears, the outlook is less certain because peso outperformance may unlikely to persist according to the head of ASEAN and South-Asia FX research at Standard Charted Bank in Singapore, Divya Devesh. Monthly trade deficits are likely to persist, leading to strong dollar demand onshore. In addition, monetary policy is likely to remain unchanged in 2019, with risks skewed towards rate cuts.

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