Peso not likely to weaken past 48 to $1

The peso is unlikely to depreciate past 48 against the dollar this year or next despite risks of post-election presidential euphoria dissipating alongside continuing uncertainties from Britain’s leaving the European Union (“Brexit”) and the US presidential elections, analysts from Malayan Banking Berhad (Maybank) said.

In a research note dated June 24 written by Singapore-based Maybank analysts Saktiandi Supaat, Leslie Tang, Fiona Lim and Christopher Wong titled “PHP: Is This a False Dawn?,” it was projected that the peso would weaken toward 47.50 this third quarter and then to 47.80 to a dollar by year end due to a mix of local and offshore risks.

The research noted that during the run-up to the May 9 presidential election, foreign investors fled for cover on concerns that the Duterte administration could reverse the economic policies of the Aquino administration and turn back the pace of reforms and liberalization. But since then, it said some of these concerns had waned and the peso had recovered most of its losses.

“Despite the initial feel-good factor, we believe this could dissipate as the reality of governing an entire country versus that of a city hits. Despite his supermajority in the Congress, he could find that pushing his platform through the Congress might not be as easy as when he was mayor of Davao City especially after the honeymoon period wanes,” the Maybank research said, noting that these would be some of the risks that could keep the greenback elevated against the local currency.

The Maybank research said the country’s strong economic fundamentals to date should provide the backstop to any rapid bounce by the dollar. It also noted that the expectations that the US Federal Reserve’s interest rate increase would be gradual should provide relief for the local currency as higher yields in the Philippines could continue to attract foreign portfolio inflows.

However, the research also pointed out that the uncertainty regarding Brexit and the US presidential elections could cap the peso’s recovery.

Nevertheless, the research said any peso depreciation won’t likely probe the 48-to-$1 level this year. The last time the local currency traded at the 48 levels against the greenback was in 2009 when the Wall Street-epicentered global financial crisis erupted.

So far, Maybank said President Duterte’s picks for his Cabinet, especially those relating to the economy, had proven to be “astute and business friendly.”

“The choice of Carlos Dominguez III as finance secretary-designate—to play the key role in economic policy—has gone down well with the markets and foreign investors. The market has reacted positively to his appointment, which has imbued more confidence among foreign investors in the ability of the new administration to move the economy forward. This was reinforced when incoming finance secretary reiterated that the policies of President Aquino will continue under the Duterte administration.”