THE PESO extended its rally against the dollar on Wednesday, touching a one-month high as the Philippine stock market advanced on improved risk sentiment and hawkish signals from the central bank.

The currency strengthened by 20.4 centavos to close at P61.41 against the greenback from its P61.614 finish on Tuesday, according to data from the Bankers Association of the Philippines’ website.

That was its strongest close in nearly a month, or since it ended at P61.36 to the dollar on June 30.

The local unit opened Wednesday’s session slightly weaker at P61.65 per dollar, which was also its intraday low. It later climbed to P61.35 against the greenback.

Dollar turnover rose to $1.618 billion from $1.16 billion previously.

“The dollar-peso closed lower despite the rise in oil prices, dragged by the local equities market, which was strong throughout the day,” a trader said in a phone interview. The Philippines is a net oil importer, making the peso historically sensitive to global crude price movements, as higher oil costs widen the country’s trade deficit.

The Philippine Stock Exchange index (PSEi) gained 0.77%, or 49.01 points, to finish at 6,353.04 on Wednesday, while the broader all shares index rose 0.59%, or 20.30 points, to end at 3,447.34.

The PSEi briefly tested the 6,400 level during the session, reaching an intraday high of 6,436.11, but profit taking trimmed gains before the close.

The peso also drew support from signs of foreign exchange intervention and hawkish policy signals from Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr., Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. Higher local interest rates can attract capital inflows and support the peso by widening the yield differential with foreign currencies.

Mr. Remolona said on Tuesday that the central bank could consider a larger 50-basis-point move amid lingering inflation risks, although the probability of such a step is small. Last month, the Monetary Board raised benchmark borrowing costs by 25 basis points for a second straight meeting, bringing the target reverse repurchase rate to 4.75%.

He also said the BSP intervened only minimally during the peso’s latest slide to smooth volatility, adding that trying to defend the currency against a strong dollar is futile because it would only deplete reserves.

For Thursday, the trader said the peso could trade between P61.20 and P61.60 per dollar as the market awaits the US Federal Reserve’s policy decision. Mr. Ricafort gave a slightly tighter forecast of P61.25 to P61.55. The Fed’s rate decisions are closely watched across emerging Asian markets, as US monetary policy expectations influence dollar strength and capital flows toward higher-yielding regional currencies. — Aaron Michael C. Sy