THE general story of the global economy in 2020 has been bleak, one characterized by sharp downturns and pessimistic outlooks for the future. However, the Philippine currency appears to be reading from a different book entirely. The Philippine peso has provided a rare tale of success in Asia during the Covid-19 pandemic, with the currency in a unique position to thrive in the otherwise tough circumstances of the coronavirus outbreak.
In August, the Philippine Statistics Authority revealed data from June on the nation's status for imports and exports. Following a 26.9 percent annual decline in May, exports reduced by 13.3 percent in June. This compares favorably with a 24.5 percent fall of imports in June, which followed a 40.6 percent reduction in May. With imports falling more aggressively than exports, the Philippines' currency account was sent into surplus and gave the peso a platform for growth.
The best-performing currency in the region
The Philippine currency outperformed all of its regional contemporaries in terms of their performances against the US dollar throughout 2020. As of Sept. 10, the Philippine peso had climbed 4.3 percent against the US dollar, taking advantage of the greenback's uncharacteristic weakness during the pandemic.
The Chinese yuan joined the Philippine peso as a currency able to make gains against the dollar, although even the heft of the Chinese economy could only secure a 1.8 percemt rise against the USD. Despite its struggles, the US dollar has maintained its supremacy over many other Asian countries during 2020, with the Indian rupee sliding by 2.9 percent and the Indonesian rupiah slumping 6.3 percent against the greenback in the same time span.
This highlights the Philippine currency's position of relative strength. If that currency account surplus can be maintained, then the Philippine peso will continue to perform strongly. The robust nature of its currency has created new opportunities in the nation's finance sector, with the Philippine peso becoming one to watch in foreign exchange markets.
There is no consensus about what will happen to the Philippine currency in the coming months, although the data at online forex trading platforms like IG will be invaluable in anticipating any shifts in momentum for the peso and the US dollar. Traders that anticipated the current account surplus will have been keen to take a long position on the peso, making them able to capitalize on the currency's rise in value.
However, things can change very quickly and dramatically during a pandemic, given the speed at which lockdown measures can be announced and enforced. This makes it even more important for traders to stay up-to-date with developments in the value of the Philippine peso, in order to make informed decisions in response to the implementation of local and national lockdowns.
Battling recessions and lockdowns
The Philippines' initial national lockdown was completely necessary to halt the spread of Covid-19, but it was also responsible for ushering in the country's first recession for almost 30 years. A year-on-year 16.5 percent contraction of its GDP in Q2 of 2020 revealed the magnitude of the struggles faced by the Philippine economy.
The Philippines emerged from its national lockdown in June with a more optimistic outlook. Yet the introduction of new local lockdowns in the capital Manila at the start of August looked set to hamper the country's economic growth. While lockdown measures may hinder the potential for GDP growth, the relaxation of these measures may cause the Philippine peso to weaken.
A resurgence of imports would rob the country's currency account of its surplus, so the lifting of local lockdowns in the Philippines would weaken the peso. Any weakening of the peso is expected to be a gradual process, given that there are no concrete indications of when global trade will return to its standard pre-pandemic practices.
If anything, several major economies like the United States, the United Kingdom and the Eurozone may be on the verge of tightening lockdown procedures once again in preparation for the harsher winter conditions. This could potentially keep Philippine imports low, thereby protecting the upward mobility of the national currency.
Analysts from Fitch Solutions have confirmed the reasonable prospects of the Philippine peso. In a report from Sept. 10, these experts indicated that the Philippine currency may continue to appreciate in value in 2021. This would be a consequence of protracted issues for the US dollar and of emboldened investor sentiment toward emerging markets.
In mid-September, the Philippine peso traded as high as 48.395 against the US dollar. This is the currency's highest level since November 2016. With low imports keeping the trade deficit narrow, the Philippine peso could continue to surge despite the slumping domestic economy. The currency's prospects will be influenced by the relaxation or re-imposition of any lockdown measures in the Philippines, but the peso should keep flying as long as import levels fail to rebound. SPONSORED CONTENT