The Strength of the Philippine Peso in 2007
The performance of the Philippine peso against the dollar had in the past always seemed to have been weak and a lot of people are curious as to how the peso has started to perform well in 2007. Our discussion will focus on the strength of the Philippine peso currency and the factors that contribute to its performance.
The strength of the peso currency manifests the improved macroeconomic conditions of the Philippines. Because of such strength and moderate inflation, Philippine bonds and stocks become more enticing to capitalists and financiers compared with other countries in the region.
The strength of the Philippine peso even prompted Bank of America to advise clients about the advantage of selling the dollar against the peso, as the bank expects the dollar-peso exchange to reach US$1= Php45 by the end of 2007.
According to Singapore-based Westpac senior currency strategist Sean Callow, the best way to take advantage of the strength of the Philippine peso is to sell non-deliverable dollar-peso forward contracts.
A forward refers to a type of derivative. When we say derivatives, these are financial instruments resulting from bonds, loans, stocks, national currencies, and commodities. These also refer to financial instruments linked to such events as changes in interest rates or the weather.
A forward is a form of an agreement to purchase assets at a specified date. Typically, a non-deliverable forward is settled in dollars. Moreover, it is not engaged in any other physical exchange of national currencies. Non-deliverable dollar-peso forward contracts are definitely a factor that contributes to the strong performance of the Philippine peso.
Another factor that contributes to the strength of the Philippine peso is the inflow of funds to the nation that come from overseas Filipino workers. In April 2007, total remittances reached US$1.192 billion, a growth of 32.6% compared with the total remittances in April 2006.
Factors that may be attributed to the strength of the Philippine peso include options on the dollar-peso exchange rate. These options indicate that the Asian currency is capable of gaining versus the dollar.
In June 2007, there was an increase of 1.4% in the Philippine Stock Exchange Index. According to Bloomberg, the Philippine Stock Exchange Index is the second best-performing index after the Malaysian Stock Exchange Index.
We hope that you were able to gain adequate knowledge with regard to the strength of the performance of the Philippine peso against the dollar in 2007. Asians, especially the Filipinos, are definitely praying that such strength will continue in order to further improve the economic condition of the Philippines.