Peso seen to weaken on lackluster trade

MANILA, Philippines—The peso is expected to weaken steadily over the next few months, and may even break through the 44-to-the-dollar threshold in November due to lackluster trading of equities and debt paper.

According to the latest research note from First Metro Investment Corp. and the University of Asia and the Pacific, the peso may trade at an average of 44.48 against the greenback by the end of November, from 42.42 in August.

The local currency may further weaken to 43.76 in September and hit 44.16 in October, the paper said.

“The exchange rate will be more influenced by whether or not foreign portfolio investors keep moving funds back to advanced countries and commodities, as equities and debt paper may not regain their luster,” it added. “We still believe that the peso will remain volatile due to external factors, but should move around the [range of 42.50-44.00 against the dollar] for the third quarter as investors may delay a return to emerging markets.”

FMIC and UA&P are referring to investors’ possible risk aversion due to lingering debt problems in the euro zone.

In a separate research note, UBS Securities said Philippine monetary authorities could allow the peso to weaken, or resist strengthening, as a way to absorb macroeconomic shocks from advanced economies.

UBS said the Bangko Sentral ng Pilipinas, along with other monetary institutions in Southeast Asia, could take steps to shield the economy from threats of fallout from troubled regions across the globe.

“We expect Asean [Association of Southeast Asian Nations] policymakers to use currency markets to absorb upcoming macroeconomic shocks,” UBS economist Edward Teather said.

Among Asean economies including the Philippines, current account balances that remain positive tend to suggest upward pressure on currencies, particularly when capital does not flow out, Teather said.

Current account refers to the balance of the inflow and outflow of goods, services, and other funds such as income, donations and debt payments of an economy.

According to Teather, the BSP is expected to either allow currency weakness or resist currency appreciation so long as leading indicators for trade and manufacturing sectors remain weak.