Peso seen to remain volatile in 2017

The peso is expected to remain volatile alongside regional currencies this year but will likely gain ground and hit an average of 47.36 to $1 by next year, the chief economist of Maybank Group said.

“Asean (Association of Southeast Asian Nations) currencies are expected to be volatile—and are displaying that over the past six months—as their movements are influenced primarily by the changing expectations about US trade, fiscal and monetary policies which affect market sentiments and capital flows,” Maybank Group chief economist Suhaimi Ilias said in an e-mail interview.

“Overall, the regional currencies are expected to be weaker on full-year average basis against the US dollar, with volatile movements during the course of this year,” he said.

The economist expects the peso to hover at the 50 to $1 levels until the third quarter of the year and appreciate to 49.80 by the fourth quarter.

The peso is projected to average 50.11 to $1 this year.

Asked about the key macroeconomic challenges for the Asean this year, he said regional economies were benefiting from “reflation” as opposed to the previous fear of “deflation,” citing a synchronized pickup in global economic activities that, in turn, boosted commodity prices and export growth.

Reflation refers to fiscal or monetary policy such as tax cuts, lowering interest rates or boosting money supply that are meant to stimulate the economy.

“However, there are caution to the current reflation that is in motion, hence challenges facing Asean,” he said.

“These include continued uncertainties over US President Trump’s trade policy amid risk of protectionism; increases in US interest rates by the US Federal Reserve this year onward as opposed to the ‘minimalist’ 25-basis point hike per year in 2015-2016; volatile commodity prices, portfolio capital flows; as well as the shift in China’s macroeconomic policy to addressing risks to financial stability.”
This raises the prospect of tighter monetary policy and prudential measures to deal with the issues of high leveraging and asset price bubble, and stabilize capital flows, external reserves and the yuan.

As to how the new leadership in the US affect the region, the economist said it would largely depend on the direction of US trade and foreign policies under Trump, something which remained uncertain to date.

“The main concern is the risk of confrontational, populist, punitive and protectionist US trade measures against countries with whom it has trade deficits, in which case the Asian region features prominently, led by China and Japan’s large trade surpluses with the US. Even if the targets of the US are the regional economies with whom it has large trade deficits, there can be negative spillovers the disruption to the supply chain as the regional economies trade extensively with each other,” he said.