USD Exchange rate to Improve for American Expats
HSBC is predicting the Philippines Peso will fall to P53 to $1USD. The main reason for this expected decline in the peso is the slow down of remittance caused by the US Economy remaining in recession.
Bangko Sentral ng Pilipinas (BSP) cut interest rates again this week but indicated it would likely be the last cut. But HSBC expects to see further cuts of 25 to .50 basis points. The Philippine government has lowered growth expectations for the year and net investment is showing a deficit. More investment is being made outside of the country than foreign investor providing new capital into the Philippines. Exports from the Philippines have also down in recent weeks
The US economy has reached a staggering 9.4% inflation rate. While the rate of increase in unemployment is down, It still may go over 10%. A number which many use to proclaim that a recession has moved into depression. There are a lot of positive signs in the US economy. The stock market has been rising since about February. Surprising, new housing starts have been up too. Some banks have been deemed stable enough by the Obama Administration to repay TARP funds. They wish to do that so they can pay executives high dollar salaries again.
This is in line with what I’ve been saying for months. The lack of investment by American firms and the loss of jobs will reduce remittance. Remittances from the US have already fallen by 25%. Remittance and high growth from Dubai and other Gulf areas have been able to make up the difference so far but that is likely reached its limit as well.
The bankruptcy of GM, will put more people out of work. GM will be a smaller auto company in the future. There will be a negative impact on the economy. Many jobs will be saved through mergers of part of GM’s operations by spinning off Hummer and Saturn among others. There is usually job loss associated with mergers. However, its certainly better than the branches going out of business completely.
Most believe the worst is over for the Philippine economy and that it will rebound in 2010. For now, the dollar has been hovering around P47. It is said their is a psychological barrier of P50.50 to $1.00 USD but once crossed for a few days, the dollars should move as high as $53.
There have been some comments on this website that the Philippines is manipulating the value of the Peso and inflating it. As I’ve written before, the rate set by the government is not the rate that trading occurs at. The Philippines can buy up Peso to lower supply, that doesn’t seem to be what is happening. In fact, The Philippines is expected to create additional Peso in the next couple of months by issuing treasury bills.
So most indicators and now expeerts, believe the exchange rate will improve for expats living in the Philipines and expat finances will likely improve.
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Hey Rusty!
Good article. P53 would be a welcomed exchange rate.
With regard to GM, did you hear about the sale of Saturn to Penske?
Junior
Hi Junior,
Yes, I did hear about Penske acquiring Saturn
The probelm you get if it goes up too much is then they raise prices because of the unfavorable rate. Guess what happens when the rate goes back down and the rate is more favorable? That’s right NOTHING. The prices stay the same.
I THINK it usually works the other way.
If an economy is experiencing inflation, something the US will likely face a few years down the road, the value of the usually currency plummets. But only if the other country is not experiencing high infnlation and all the other factors are stable. I think if you think about that a bit I think it will make sense.
When it takes more Peso to buy something then I’m going to expect more peso for my dollar. Inflation causes future buying power to decrease using that currency. Countries adjust interest rates to try to regulate this, but high inflation can push interest rates up. Like in the late 70’s and early 80’s in the US.
Yes but it now takes them more Pesos to pay for the items they import.
This happenned last time when the rate went to P55. Prices for numerous goods went up. When it dropped to P38 the prices stayed the same.
Still, you’re putting the cart before the horse and you’re looking to narrowly.
Most of the inflation in the Philippines came after the dollar went to P55. Inflation was world wide due to oil and gas and fuel prices. Fuel prices are now starting to threaten again.
The dollar fell because the entire world knew the American economy was in trouble. it wasn’t a secret. People knew it was coming, they politicians here were in a bad position, the way to prevent it was to stifle growth by bringing an end to the risky investments that were going on.
Many prices did fall in the Philippines after that, bus fares being the most obvious. A bus ride from Cebu City to Bogo went from P60 to P120. The buses were soon empty. Gas prices fell and the bus lines dropped their fee back to a more reasonable P80.
Rice prices also came back down. I’m sure much more did, that’s just what I noticed.
Inflation was a huge problem last year. The dollar got to a point that European banks wouldn’t even take it for a few days. Maybe you remember that?
Once banks came to their senses, and stopped lending, the money supply dried up and the dollar went up again.
There is no reason to raise prices when the dollar is high. They will get more peso for the dollars they earn with their exports. Exports are down right now, unlikely time for an increase in prices of exports.
China is doing very well with a growth rate of 7.5% expected for the year. Likely the Philippines will target their exports even more for China.
Something interesting I saw the other day, The Philippines is about to issue bonds in Yen’s. The value of the Yen to the dollar has gone up substantially over the last year. That implies to me that the Philippines think they yen is over valued and will fall or at least decrease their increase in value, making it cheaper in the long run to pay them back. They get a lot of yen now but if it falls they can convert dollars or peso to pay it back if those go up. Over five years though, its pretty hard to predict what will happen.
It may not make any sense but that is indeed what happened. The rice issue occured after the rate had already fallen. Even the bus fare yes it was reduced but was it reduced back to 60?
This has happened several times as the rate has climbed and fallen not just now.
Tom, the dollar rising in value does not cause inflation in the Philippines. When an economy has inflation the value of its money falls.
Many items will not go down in price at a later date, others will. Deflation is generally considered to be far worse than inflation.
Markets often react to situation before they actually hit. The US stock market is a leading indicator, for example. Over history it leads the economy by nine months. The turn around in the stock market a few months ago is caused by sophisticated investors seeing things in play that will change the economy. They don’t wait till then to buy as the stock is at its lowest now. I do not know if money exchanges lead or follow but I suspect they are pretty much inline with the what the economy is doing at that moment due to liquidity. But the stock market is liquid too, so that may not matter. I am going ot try to research that.
You are putting the cart before the horse. You’re free to continue doing so if you wish.
Economic indicators or not I have seen this happen the last three times that there was a large increase in the exchange rate. You are trying to apply logic to a place where logic seldom applies. Watch and see. The cart will cost more the horse will cost more and so will the hay.
Tom, that is not true, logic does apply here. I’m a bit surprised you said that.
If you want too ignore facts, like economic indicators, I can’t prevent you from drawing improper conclusions.
A. Yes the dollar went up. B. Yes the prices went up. A does not imply B It is just the opposite. Some things are complicated, this one is not..
So tell me why petrolium supply is up demand is down yet the price of gasoline is rising.
I am not ignoring them I am just telling you what has happened the last three times the peso rate went up substantially. Prices went up and they never came down. If the two are unrelated then maybe it is just an amazing coincidence.
Supply is not up. OPEC cut production to try to get prices back up. Stockpiles may be up but newly pumped oil is down. And you’re talking about what is happening in the US. The price of oil has been artificially depressed do to the recession. Prices are definitely expected to rise in the US. One of the fears is if it goes up too fast, it will stifle the recovery. And we can never forget the greed of the oil companies. But then that’s one of the mail goals of a corporation, to maximize profits.
The lower prices in oil and gas have resulted in some wells shutting down as it is too costly to extract it. With higher prices, more drilling occurred in places where the cost to drill was higher.
Further, gasoline and natural gas prices are down substantially in the Philippines as well as the price of rice from a year ago. I already mentioned that.
More important for the price of oil and gass than the supply is the demand. Even if stock piles are high, if the demand is increasing prices will tend to rise. Markets are future looking.
I know what your telling me but you’re applying the wrong cause relationship. Inflation in one currency will cause it too loose value against another currency where inflation is lower if every thing else is equal. And never will everything else be equal. A high dollar rate did not cause prices to rise in the Philippines. Inflation is one of the factors that will affect the value of currency.
The rate of inflation has been well below the increase in the value of the dollar.
You’re assuming that the rising value of the dollar made prices go up. I don’t believe that is the proper relationship.
Also, some commodities are price inelastic while others are elastic. I had forgot all about those terms, been a long time since I sat in a totally confusing economics class.
Some commodities a price that reacts strongly to demand other products react very little to demand. Any more than that, I don’t remember.
Exactly. So you are saying the prices are being manipulated. That is my point. Perhaps that is the same thing which occured when the rate went up but prices most certainly did rise. Make of it what you will.
No Tom, I didn’t say that prices are being manipulated. Since I don’t know where you think I said that, I can’t respond more.
By artificially lower, I meant that demand had fallen so low because of high prices and low consumer confidence.
Okay, you tell me, who is manipulating prices and are you talking about the US or the Philippines. The world is not controlled by conspiracies.
No I don’t believe everything is a conspiracy, but OPEC and the oil companies are certainly fooling around with the price of petroleum. In some ways that is not a bad thing we really should use less. I wonder how they would feel if we made the wheat we sell them for food $110 a bushel.
Yes the high price of rice from a shortage that never really existed in the first place. It just might have exsisted. A lot of other food prices spiked up about that time for no apparent reason.
So while not everything that happens is a conspiracy there are at least a few hinky things going on behind the scenes.
They would buy the wheat from someone else.
OPEC does often cut production. Our dependance on it is a huge issue for the US national security but that doesn’t hahve a lot to do with the price of the dollar vs the peso.
You are miss-informed about rice. Yes the government made a huge deal out of stock piles in warehouses. These inventories were normal. There was a world wide shortage of food last year. There may have been some political grandstanding. Now who could fake a world wide food shortage.
BUT, even if it wasn’t real, it doesn’t matter. Lets say someone horded things to drive the price up. The effect is the same, the prices went up because there was a shortage. It doesn’t matter if it is artificial or otherwise, which I don’t believe. Someone would have sold what they had, the markets are very good at pricing commodities and stocks. Its all irrelvant though.
Asia and the Philippines have experience growth in their economies. When their is growth, inflation is always an issue. If there is too much growth, the central banks raise interest rates to slow down growth.
The last fall in the dollar was caused by the Fed cutting interest rates to zero, the dollar had been heading to 50 but that caused it to fall back to low P47. The Philippines had high inflation last year, double diget for a period of time, thus the value of the Peso fell.
Well if you horde stuff to create a shortage aren’t you manipulating the price. There really was no food shortage at all they were just talking that there might be one. There are some places that are always short of food.
They wouldn’t buy it somewhere else if we had an organization just like theirs. There really aren’t that many countries that have large amounts of food available for export.
The best answer of course is develop new technologies to reduce the need for oil. It always comes down to cost though. Diesel engines can run just fine on vegetable oil. Why don’t they? Because petroleum is cheaper. Also maybe not a good idea to burn our food for fuel.
The biofuel push has led to a lot of ecological damage by people clearing forest to plant palm oil trees and other crops for fuel.
We were talking about the dollar to peso value.
You’ve changed the subject and then say this proves you correct to start with.
First, we haven’t proved there was hoarding, second if there was it had nothing to do with the value of the dollar going up, and yes, prices are “manipulated” every minute. Its called business.
I don’t know about you but I for one have enjoyed these banterings back and forth.
Bantering is fine, but I’m not following for the old, I’ll change the subject and then say see, I was right trick.
And hello Bob, I enjoyed you in Swing Blade.
hey rusty.. hi, i am winnie… well i’m conducting a research and i just want to ask if….. ahm… is there an impact on purchasing power of consumers these dollar exchange rates to philippine peso? what do you think are those factors? thank you and godbless!
That’s a pretty complicated question.
A strong Peso makes it easier for the Philippines to import items from the USA and other countries.
Electronics are usually more expensive here, at least in computers and high end TVs. A strong Peso would tend to help lower those cost for those living in the Philippines. I’m sure there other areas where the same would be true. It would make imports easier to afford.
It will make it harder though to export as the dollar will not purchase as many goods from the Philippines. This will hurt exports and thus hurt jobs. Fewer jobs will make it harder for Filipino to buy any goods.
Probably more important is that it will lower the value of remittances that overseas Filipino workers are able to send back to their families. Remittances are about 10% of the total Philippine economy and a very weak dollar would have a devastating effect on the economy of the Philippines. Again, the lower value of the dollar will make those that depend on remittances from over seas have less money. Less money means fewer goods are purchased and would again put people out of work due to lower demand. Fewer goods will be purchased.
These same factors have an equalizing effect though. If the Philippine economy gets weaker because of these issues, it will push the value of the peso down.
There is also a danger of inflation in the Philippines. That has an immediate effect on consumers and lowers the value of the Peso.
These are some ways that I can think of how it affects consumers here. I’m sure there are other ways and these are just my opinions. They make sense to me in a capitalist economy. I suggest you only use this if it makes sense to you. I wouldn’t take anything I saw as fact but opinion. I would advice you apply your knowledge of supply vs demand to come up with your own ideas.
Also, Bangko Sentral ng Pilipinas properly acts to stabilize both he dollar and the peso. They don’t want the prices to change to fast. The central bank has stated that is their purpose regarding the exchange rate between the dollar and the peso. They can influence but trying to control it totally, if they could, and I don’t think they can because off free markets outside of the Philippines would likely be harmful in the end.
I hope that helps! Thanks for the question, it helped me clarrify my own opinions.
Rusty, your logic and explanations are right on. Prices and goods are manipulated daily…it is called business… also known as free market… well put my friend!
You’re right about the manipulation. Its become to imply evil things but setting a price is manipulation.
I suppose most of us think it means unfair methods used to artificially push up profits. I wonder howmany of us wouldn’t make all the profit we could. 
Thanks for the kinds words.
Well since businesses are in the business of making profits, then price at product manipulation makes perfect sense….at least to my business logic…..ahh but I forgot….the basic consumer isn’t interested in the business side of things. A fair price for a good product equals value!
I think it makes as much sense for the consumer to want to spend as little as possible for something as it does for a business to make as much as they can.
Hey Rusty,
I think you may be wrong about the rate favoring the dollar over the next few years.
The emerging economy is where most growth is occuring and will continue to occur for a long time to come. Countries which are already developed are losing their competitive edge in terms of technology, very rapidly. The last area for competitive improvement is in wage/ lifestyle cuts, most likely via inflation.
The Philippines has a lot of room for internal economic growth, when compared to the USA. This growth opportunity, if carefully nurtured, will only lead the Peso up in forex.
Wages in China have been creeping up over the last decade from a tenth of a Filipino wage to about half. This shows that even with a billion odd spare workforce, skill increases are leading to real wage increases.
The assumption that the USD will always rebound in the market is based on history not on science. That history is dead.
If the USD loses reserve currency status, in the current market, it will fall like a rock.
There is a catch 22 about all of this, on the one hand there is a lot of anti USA dominance feeling pent up around the world, on the other, everyone has some vested interest in the USA consumer market. Many would like to see the USA fall over as a superpower but would suffer themselves (at least for a time) if it did.
The idea that market manipulations will save the dollar fails to recognise the point the USA has come to. It is a massive consuming nation, far past all resource peaks internally, with a populace used to fueling debt with wages 10 times world averages. In other words it is not sustainable.
Sorry about your pension Rusty but at least you are making moves towards independence and flexibility. Many expats in the RP have no option if the rate drops but to run back to the miserable existence which is retirement on a pension in the USA.
Chris, now that more time has passed and the US economy is pulling out of recession much sooner than expected investors are less risk adverse and are looking to invest in developing countries again, I agree. The article was written based on high risk aversion, that has now changed. Everything is out the window.
The high amounts of spending will have a weakening effect on the dollar, I said that early on in an article.
It was also believed the financial crises in the banks due to the falling home prices would be worse than it is turning out to be. The actions taken by the US government but the White House and the Fed have been very effective.
A lot of experts say a value added tax is coming in the US. I don’t think that will happen within the next 3.5 years. If Obama gets a second term, he may have no choice but to do it.. To do it before then would be political suicide. Even if it is the correct move to make, the Republican’s will eat him a live.
Things change fast in the world of Forex. Probably good lesson and lesson number one.
I think we’ll be lucky if they dollar doesn’t go below 44.
Yap, can’t say I disagree with ya there. I guess that was what i meant by a fair price for a good product equals value. I am really liking this site, though I am not moving to Cebu, I have been to Cebu City and love the area. For now Metro Manila beckons and I must answer that call first. Y’all be safe now heah! or Ingat ka palagi kaibigan!
What’s really going on in the USA economy today: (does not bode well for USD forex)
http://finance.yahoo.com/tech-ticker/article/312114/%22In-the-Tank-Forever%22-U.S.-Consumers-Retailers-in-a-%22Death-Spiral%22-Davidowitz-Says?tickers=dltr,fdo,ndn,kss,xrt,WMT,CVS&sec=topStories&pos=9&asset=&ccode=
The Davidowitz article is really no big surprise. Almost anyone with even a moderate dose of common sense can see that with its current administration running amok on Americans and civil liberties, bailouts for mismanagement, TRILLIONS of $$$$$ in new debt, mostly owned by China, America is in a very precarious position and knee deep in a slide toward fascism/socialism. It is just a matter of time before America succumbs to the progressives liberal calling of its president and congressional leaders. I pray that all of America will wake up before that happens and remove these constitution destroying parasites from office. If the American people continue to just sit back and accept the drivel these politicians are force feeding them, the ruination of the greatest republic this world has ever seen will be inevitable. The founding fathers Geo Washington, Thomas Jefferson, James Madison and the like must be spinning out of control in their graves. God bless America still!
Running amok on Civil liberties? Man you’re got that totally fouled up. That’s why Republican’s suck they are horrible for this.
I’m having nicotine withdrawel so I’m not going to wade into this.
To me, the almighty dollar seems to be the only “civil” liberties the Republican’s give a damn about. Well I should not group them all into one place. Most of them. I better quit, I’ve not had a smoke in three days.
GWB didn’t do much for the constitution either. Plus he was at the helm while it became possible for jobless turkeys with no credit rating to buy a half million $ house.
They are all as rats–t as each other.
No question GW stepped right along this path as well…I am grateful to him for keeping us attack free for 8 years post 9/11, and that is really about all the credit I will give him.
There is nothing to be greatful for GWB except he is gone. He kept us free from nothing. We just got lucky.
If you guys wanna talk politics not related to monitary policy, I’d rather we take it to my site at http://www.rustyferguson.com please.
I love politics but I’d rather keep this site related to the Philippines.
Hey Rusty,
I think you hit this one on the head. It is a very interesting topic, one it seems you have done a lot of research into. Here in Michigan it seems as though it is starting to turn around very slowly. We must remember though that Michigan, Ohio and Indiana have been hit very hard primarily due to the main industry being automotive. If we were not in an actual depression it had to be very close. Some of the government released statistics do not tell the whole story. One example is the unemployment rate, although extremely high, some places over 17%, it is in fact much higher as many individuals have just given up on trying to find employment. I know several such individuals. Others have left the state in search of employment and have not been successful. There are many others who are employed, however they are underemployed, most working only part-time. Will the U.S. economy recover, most definately, when, I am not sure anyone can be absolutely certain.
I have done much reading but, I continue to be confounded by things not going the way I expect them too. Seems like my conclusions turn out wrong for all the right reasons. LOL
There are so many factors that influence, its hard to consider them all. And there is much information that I don’t know about. The DoLe, I think is the real hero of the Philippines economy by opening up new avenues for Over Seas Filipino workers that seems no one expected.
Basically, the old supply and demand is the chief component, but trying to find all those factors is very hard for a layman.
It hasn’t received a lot of press, but the stock market began to turn around as soon as the stimulus bill was passed. I predicted three or four months ago that it was time to buy stock. i got that one right.
We were in a depression, I don’t think there’s much doubt about that. The unemployment number has always been like that. Nothing new so the number is a good number for comparison to past times. Most people say 10% is a depression, 9.5% is close enough. It may still go over 10%.
And if your one of those people that are not working, they are in a deep depression. It’s really easy to give up looking for a job. Been a long time since I’ve been in that positioin but all that rejection can really wear down someone’s spirit.
Where I am working in Australia the economy is riding on the back of mineral exports to China and India. Otherwise we would be in the same position as the USA in forex.
In April I came back to work getting about 30 peso to the AUD; currently I am getting 40 odd. 25% increase in a few months. The USD has barely moved by comparison, mainly because all the major growth in the world economy is going on in China/ India and the USA has almost run out of usefull exports to these countries.
By comparison to the RP, which is strategicly very close to China and just scraping the surface of it’s mineral deposits; the peso is looking pretty good.
Of course there are untold variety of factors which will impact on the real exchange rate in coming months and years.
But on the subject matter directly; I can’t see how the USA can regain dominance in real markets or therefore in forex. Currently the strategy is borrow borrow borrow. This has gotten to the point where nobody wants to lend so the Fed is ‘buying treasuries’ in other words the Government is printing money. The only reason this has not already lead to massive inflation is the USD reserve currency status along with media hype about the long term historical security of US bonds.
The only realistic way forward for the USA is downsizing massively on consumption and spending, whilst getting very serious about innovation and protecting key technologies.
The train has probably already left the platform on this score; leaving only reserve status and fear of global collapse driving the dollar. Hence the current global ‘recovery’ is actually more likely to hurt the USA and it’s currency as it becomes more and more apparent that the world is not about to end and Asia is where the real market growth is occuring and will continue to occur.
In the last 18 months, the dollar has gone from 1 to 39: to as high as 1 to 50. P39 is on the lower end of the peso to dollar value through the years.
It made a huge difference in my budget when the dollar went back up. If lending hadn’t starred again, I think the dollar would have gone to P60 but ther would have been some hurting American’s that live in the USA.
I need to update my historical numbers. I’m going to start adding several currencies and gold too to get a better idea of what is going on.
Still waiting on this 53 to happen. Seemed the peso went up against the weak dollar from 48 to 46, and right during the 3 major typhoons that hit . Amazing a country ravaged by typhoons the worst in 20 + years and some say the worst ever , yet the value of the currency excelled ! Wow the Philippines should have a typhoon once a week , they would all be millionares in a few months ! Whats up with the crazy scenario ?