Filipino Remittances to Buoy Peso After Typhoon: Market Reversal

Filipino Remittances
Transactions are made at a remittance agent who specializes in Philippine peso transactions in Hong Kong. Photographer: Nelson Ching/Bloomberg

The Philippine peso is set to rebound from a three-month low as remittances from 10 million overseas workers in the run-up to Christmas offset some of the damage done by one of the nation’s deadliest storms ever.

A 2 percent slide since the start of November pushed the peso’s 14-day relative-strength index above 70 this week for the first time since August, a sign of a possible turnaround. The currency also breached its Bollinger band as it dropped to 44.345 per dollar on Dec. 10, the weakest level since Sept. 9.

“The peso seems to be oversold at this point and, looking at the trading patterns, there’s a good chance of seeing a rebound,” Minoru Shioiri, a Tokyo-based manager in the credit and foreign-exchange trading division at Mitsubishi UFJ Morgan Stanley Securities Co., said in a phone interview yesterday.

Money sent home by Filipino workers accounts for about 10 percent of the country’s economy and may support the peso after losses last month caused by Typhoon Haiyan, which killed almost 6,000 people. The currency had been strengthening, recovering from a three-year low reached in August amid the fastest economic growth in Southeast Asia.

The peso rose 0.1 percent to 44.085 per dollar in Manila, reversing earlier losses of as much as 0.3 percent and taking its decline this month to 0.7 percent, Tullett Prebon Plc prices show. Its 7 percent slide in 2013 is positioning the currency for the worst annual performance since 2008.

Remittances Rise

Workers’ remittances increased 5.8 percent over the first nine months of this year to $16.5 billion, official data show. December had the highest total for each of the past three years, with payments reaching a record $1.97 billion in December 2012.

Together with the $12.3 million received from foreign donors in the wake of the typhoon, the money flowing into the country is damping the effects of global funds pulling $43 million from Philippine stocks this month, partly on expectations the U.S. will soon reduce monetary stimulus.

“It may be a bit of a surprise to see the peso weakening at a time of strong remittances and supposedly a lot of foreign aid after the typhoon,” Roland Avante, the president of Philippine Business Bank, said in a phone interview from Manila on Dec. 10. “It’s hard to say whether we’re seeing the end of the selloff even at those oversold levels. These levels should be attractive already to start buying the peso.”

Peso Intervention

The peso may also be buoyed by the central bank’s signal that it’s ready to intervene in the currency market to stem excessive swings in the exchange rate. Bangko Sentral ng Pilipinas Governor Amando Tetangco told Bloomberg News on Dec. 10 that policy makers are “closely monitoring developments” and will step in as needed to curb volatility. The central bank kept the benchmark interest rate at 3.5 percent today.

After the peso’s daily trading range breached the upper end of its Bollinger band in late August, the currency went on to climb to 43.01 by Sept. 23, from 44.76 on Aug. 29, the lowest level since September 2010.

Developed by John Bollinger in the 1980s, the bands are used by technical analysts to identify the turning point in an asset’s trajectory. The limits represent two standard deviations from the 20-day moving average, implying that the likelihood of a currency moving outside the band is small.

The peso touched a five-year high of 40.55 per dollar in the first quarter as President Benigno Aquino reined in the budget deficit and the nation won investment-grade status from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings for the first time this year.

While gross domestic product expanded at least 7 percent in each of the last five quarters, growth has slowed since, and gains in the peso may be short-lived, said Alan Cayetano, the foreign-exchange trading head at Bank of the Philippine Islands.

“The peso may correct to below 44 levels in the near term as technical indicators suggest oversold conditions,” Manila-based Cayetano said yesterday in an e-mailed response to questions. “However, it seems that the country has exhausted all the positive news it had going for itself.”

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