ING sees peso weakening to 54-to-$1 level

The peso may slip back to the 54-to-$1 level in the next 12 months as a further increase in US interest rates and the lingering US-China trade woes are likely to drag down most Asian currencies later in the year, Dutch financial giant ING said.

In a research note dated Jan. 11, ING said that while 2019 started with a softer US dollar and the consequent strengthening of most Asian currencies, this is seen to be reversed as the year progresses.

The recent appreciation bias has been caused by a change in the US Federal Reserve (Fed) rhetoric, which now sounds more dovish than hawkish.

“The market has overreacted to this and is pricing in some Fed easing this year, which we believe to be totally off the table. Indeed, even if rate hike expectations within the Fed have been pared, and their timing pushed back, the direction for policy rates is still up,” ING said in a research note.

Meanwhile, ING noted that trade optimism had caused the US dollar to lose some ground to Asian currencies, particularly the Chinese yuan.

“Once again, we are skeptical that much has changed. The US President needed to score some quick wins with equity markets and this was a convenient way to do so. And China was always an open door for more soy and LNG (liquefied natural gas) imports. The harder discussions come on intellectual property and government support for state enterprises. These aren’t realistically on the table for China, and we may see the mood on trade sour again within months,” the research note said.

As such, ING expects the yuan to depreciate to 7.3 against the US dollar from 6.7405:$1 at present. The Chinese currency is seen reaching 7.1:$1 in the next three months.

For the Philippine peso, ING expects the local currency to hit 53.64 against the dollar in the next three months, weaken to 53.89 in the next six months and further to 54.24 in the next 12 months. As of Friday, the peso closed at 52.14 to a dollar.

ING noted that the peso had moved sideways with an appreciation bias as foreign flows returned to the local equity market given the dovish outlook on the Fed.

However, ING said the peso’s gains were being limited by “onshore demand from corporates as well as lingering concerns about the country’s current account deficit with the country still seen to experience stark demand for imports in the coming year.”

Philippine importation of capital goods has risen in recent years, contributing to the country’s current account deficit.