The peso is unlikely to strengthen beyond P47 to the US dollar by the end of the year, analysts said, given factors such as divergent monetary policies, concerns over growth in China and in emerging markets plus a plunge in commodity prices.
“The Philippine peso ending this year below P47 is increasingly unlikely,” ING Bank senior economist Joey Cuyegkeng said in report, noting that while markets have accepted the likelihood of a US interest rate hike, other central banks were expected to continue easing policy.
“The major focus is on the outcome of the FOMC (Federal Open Market Committee) meeting [on Dec. 15-16),” Cuyugkeng said.
The US Federal Reserve’s policymaking body is widely expected to approve its first interest rate hike in nearly a decade on Wednesday (Thursday in Manila).
“FOMC is expected to lift policy rates this week, having prepared the market for such since October and supported by relatively favorable economic reports in housing, services and consumer spending. Manufacturing indicators are mixed,” Cuyugkeng added.
Other major central banks and some Asian central banks, meanwhile, are expected to continue easing monetary policy to support growth.
“Central banks of Thailand, Indonesia, Philippines and Japan [will[ review their monetary policy settings and stance. The market expects that these Asian central banks would keep policy settings steady,” he said.
A Fed rate hike would boost the dollar, Cuyugkeng noted, along with regional developments such as a weaker yuan, China’s economic slowdown and sharp commodity price drops.
“Aside from monetary and fiscal stimuli, markets have been surprised by the steady weaker fixing of Chinese yuan last week. The weaker yuan fixing has been a negative surprise for Asian currencies which revived possible competitive weakeing,” he said.
“The low commodity prices raised concerns of credit issues that could lead to significant credit risk,” he added.
In a separate report, the research arm of Metrobank said markets could see increased volatility after the Fed meeting.
“After seven years, the US Fed is expected to exit the loose monetary policy it has implemented amid a now stronger economy,” Metrobank Research analyst Pauline Revillas said.
She noted that volatility becane more pronounced leading up to the FOMC meeting, with investors scrambling out of emerging market assets sending stocks and currencies down.
“The yearend forecast of P46.80 which we issued last September now appears tenuous given the current level and the on-going market volatility. More likely the peso may settle between the P47 to P48 range until yearend given the current breakthroughs at the P47.30 levels,” Revillas said.
Nevertheless, overseas Filipino workers remittance flows and business process outsourcing receipts could continue to lend support to the peso, she noted.
“Our long-term outlook is still that of relative peso appreciation versus the yearend exchange rate as funds may flow back to the Philippines given the economy’s still strong macro potentials, though market volatility and sentiment will likely keep a dampener on things,” Revillas said.
Trading at the Philippine Dealing System (PDS) on Wednesday saw the peso closing at P47.34:$1, the same finish on Tuesday and Monday.
The currency opened at P47.35 to $1 before trading between P47.29 and P47.36. Total volume transacted rose to P604.9 million from P497.4 million previously.