MANILA, Philippines - Optimism on the re-election of US President Barack Obama drove investors to risky assets such as the peso, which closed to a 56-month high against the greenback yesterday.
The local currency hit 41.06 to a dollar yesterday, 15 centavos higher than Tuesday’s 41.21. This was the peso’s strongest performance since March 7, 2008 when it hit 40.85.
Dollars traded reached $968 million, also higher than previous day’s $750.70 million.
“This is market’s initial reaction to the re-election of Obama. Basically, it is back to risk-on sentiment,” a bank trader said in a phone interview. “The re-election paves the way to addressing the problems facing the US economy such as the ‘fiscal cliff,’ issues of Iran tensions and dealings with the change of leadership in China,” he added.
“The market is more comfortable seeing the incumbent at the helm because they know he (Obama) is familiar with the issues that need to be addressed.”
Democrat Obama notched a second four-year term at the White House yesterday, defeating his Republican rival Mitt Romney in a tight race, according to projections of major television networks.
Facing Obama is a sluggish US economy characterized by slow growth, huge unemployment rate, and trillions in budget deficit and debts which could be worsened once tax breaks expire and spending cuts kick in later this year.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said it would be “difficult to say” how the US election results would affect long-term capital inflows which have also driven the local bourse to new-highs last Monday and Tuesday.
“It is not just a question of political leadership but also the national psyche of pursuing more savings and more investments to sustain the recovery,” Guinigundo said in a text message.
“At the same time, it would also be necessary for the US consumers to regain confidence and start spending again. This is rather a difficult call because of tight labor market in the US,” he added.
The bank trader said the peso could test the 40-peso level against the dollar today, but stressed the BSP “will always be there” to intervene.
BSP, which has a 42-45 exchange rate assumption this year, has been buying dollars to tame the peso’s appreciation, which if proven too much could trim the value of dollar export earnings and remittances from overseas Filipinos.