I last wrote about the dollar to Philippine peso currency trading on Oct 31, 2011 when the dollar was falling. The dollar was falling because the US stock market was soaring. The point of that article was to drive home that there is usually an inverse relationship between a the value of a country’s currency trading value and the behavior of the same countries stock market indexes. For now, the steam is out of the US stock market and the dollar to Philippine peso has once again risen in favor of the US dollar. Hey, I got one prediction right. So now I should start investing in the forex? Hardly, but you know what, after a year of closely watching this, I’m getting there.
Dollar to Philippine Peso Currency Trade Is Above 43
As of Sunday around 5:30PM Philippines time the dollar is trading at 43.35. When I wrote about the dollar to Philippine peso back in October the dollar has aburtly fallen to 42.6. Here is a chart from XE showing the movement over the last month.
The thing is, monetary policy agencies in a country can and do throw a monkey wrench into the works from time to time. Twice this year, Japan has sold huge amounts of its currency for the sole purpose of lowering its value. Then Japanese Yen has been rising since the tsunami wrecked havoc there earlier this year. Likely because Japanese expats and businesses operating overseas are converting their dollars back into Yen to fund repairs to the Japanese infrastructure and their businesses. I have been following DSLR camera prices closely over the last few months and have seen a rise in the prices of camera during part of that period. Most of cameras are made in Japan. With the Yen, rising dollar prices go up making it harder for exporters to sell their products. This is the normal reaction to rising prices and is the reason a country usually does not want to overstate the value of its currency.
With the perception by many that graft in the Philippines is more common than the rain, many people assume that this holds true for the dollar to Philippine peso currency trade. Graft does happen and a lot but I have not found it to be nearly as common as many people think. When it comes to currency trading, the markets are so large that it is nearly impossible to influence it. A central bank can to some extent. But, a country like the Philippines cannot hope to influence the value of the dollar over a long period of time. The economy of the Philippines is way to small for it to pull that off.
The central bank of the Philippines does step in from time to time when there is a wide fluctuation in currency trading. This year they have stepped in two times that I know of to increase the value of the dollar by buying dollars. This is exactly what a central bank is suppose to do. A few years ago, the bank often sold dollars when the dollar was rising too fast in the short term. It is normal and acceptable for a central bank to calm the markets in this way.
Dollar to Philippine Peso May Fall Again
The dollar to Philippine peso has risen again because of our friends in the Euro Zone. However, this may not continue in the short term. In the last few days, a document has been leaked that indicates leaders in the Euro Zone have a deal setup with the IMF. Basically, the IMF is guaranteeing the currency. If things get too bad, it will step in and from what I can tell basically take over the Euro for a time. We will have to watch to see how this develops but the stock market in the USA seems to be reacting favorable to this news in the futures market. Likely the stock markets will follow the futures market. If so, investors will convert their cash into stocks and the value of the dollar to Philippine peso will likely fall if all things in the Philippines remain equal.
It is very difficult to predict short term trends in the currency markets. This is because of the many factors that influence the value of a currency. In the short term, I believe that market perception plays a bigger role in a currency pairs value than do the economic conditions. And as mentioned above, a countries monetary policy makers can take action to change the trend without any indication that it is about to do so.
This week the policy makers in the USA are facing down budget cuts. And it appears there is a good chance the committee will not be able to reach an agreement. I am certain the Republicans will not move. Some Republican leaders have stated that their primary goal is not the good of the country but instead it is to remove President Obama from the White House. I hope the American people are listening. I am expecting large changes in our representation in congress in 2012. That is exactly what is needed. Right now, I don’t think it is going to go well for the Republicans but that can be harder to forecast than the volatile exchange rates. I am uncertain that failing to reach a deal will have much of an impact because the automatic budget cuts will kick in but they don’t actually to into place until 2012.
However, rating agency will be watching. I saw that Moody’s is now becoming concerned too and may downgrade the US dollar. Standard and Poor’s said they made their decision because of the attitudes expressed by the USA’s lawmakers. I’m sure the Republican’s are hoping the Democrats may cave again. They have no reason to think anything else. Also if the Republican’s are to give into increased revenues or new taxes then they will give Obama a leadership win and there is no way they are going to do that. The Democrats have caved before but I hope they do not. It isn’t any better for the country in the long run than the Republican’s mission of ousting Obama.
Another downgrade of the USA’s credit rating could be the straw that breaks the economic camel’s back. It could send the stock markets into chaos again at a time when the investors are already alarmed. This will be bad for many but it will likely be great for expats and business that operate in foreign markets using the dollar as its currency. When stock market investors are worried about stocks, they convert them to cash and the cash they convert to is the might dollar. When that happens the value of the dollar rises and expats see increased income.
The future value of the dollar to Philippine peso is very much in the control of lawmakers in the short term and that is way to volatile for me to predict the outcome of.
Filed under: Dollar To Philippine Peso
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