The Best Performing Currency of Asia in 2020

The Philippine peso is the best currency of Asia during 2020.

The Philippine economy has been hit hard by the strict lockdown measures used to curb the spread of the coronavirus disease. It has recorded the worst deflation in Asia in the second quarter after shrinking 16.5% year-on-year since its first recession in nearly three decades.

Data compiled by Johns Hopkins University shows the Philippines has a total of more than 248,900 reported cases of COVID-19, the highest in Southeast Asia. Among those, at least 4,066 died, according to the data.

The Philippine peso has appreciated about 4% against the US dollar this year, outperforming its regional counterparts. It is also one of the few Asian currencies recording gains against the dollar, along with the Chinese yuan and the Taiwan dollar.

On the other hand, annual inflation rates fell to a level of 0.9% in September, down from 6.7% last year, supported by the decline in rice prices.

A high trade surplus

The collapse in import demand came after the Philippines had one of the longest and toughest lockdown measures in the world to defeat the coronavirus.

Economists said the drop in imports was steeper than exports, which proved to be a boon for the currency as the Philippine currency account turned into a surplus.

The current account measures a country's total transactions with the rest of the world, including

* Imports and exports of goods.

* Cross-border investments.

* Cash flows such as workers abroad and foreign aid.

A graph of the percentage change of the Philippine peso in value against the US dollar since the beginning of the year, compared to other emerging Asian currencies.

Nicholas Maba, chief economist of the Philippines at ING, said, referring to the Philippine peso's gains, “The continued decline in imports translates into weak foreign exchange demand and is likely to lead to short-term support.” He added, “The Philippine peso continues to outperform its regional counterparts, as the country records a current account surplus year-to-date in 2020, mainly due to the significant drop in imports, and we can expect this trend to continue in the fourth quarter of 2020.”

Increase the country's foreign exchange reserves

This surplus, in addition to the Philippine Central Banks decision to cut interest rates three times this year, has contributed to stimulating growth in making its bond yields the highest in Asia and thus succeeding in attracting foreign investors. And with continued foreign buying of Philippine bonds, the country's foreign exchange reserves increase, helping to protect the economy from external shocks - another development that supports the strength of the Philippine peso, according to economists.

Thanks to the increase in the real value of bond yields, the value of the Philippine peso has rebounded by 3.6% this year to reach 50.715 against the dollar last week, the highest level recorded since January 2018.

Currency strength may diminish

Analysts from Fitch Solutions said in a report that the disputed US presidential election result could put pressure on the Philippine peso in the near term. This is because foreign investors will reduce their exposure to emerging market assets in favor of safer investment options, they said.

In the long term, analysts said, reopening the Philippine economy and resuming imports could cause the currency to weaken.

HSBC: Indonesia and the Philippines both have room for fiscal stimulus

“With the easing of domestic restrictions, we expect a gradual reversal in the current account improvement, with the current account turning into a deficit of 0.9% of GDP in 2021,” the report said.

However, analysts did not rule out the possibility of an increase in the value of the Philippine peso. Particularly if imports remain weak, with the demand for exports rising, this will further boost the current account.

“This, combined with the continued weakness of the US dollar and positive investor sentiment around (emerging market) assets, could see the pesos rise during 2021 as well.”

(Source: https://www.borsaforex.com/-Philippinepeso/)