Further strengthening of peso vs US dollar seen in 2021

Asian currencies, including the Philippine peso, are expected to further strengthen against the US dollar this year while most current account balances across the region will remain in positive territory, UK-based Oxford Economics said.

Oxford Economics’ head of Asia economics Louis Kuijs said in a Jan. 13 report that the global weakness of the greenback since 2020 would likely spill over to 2021 as emerging markets in Asia catch up to the United States’ level of gross domestic product (GDP) per capita.

“In the coming two decades, we expect catch-up to remain a significant source of real appreciation for Asian emerging market currencies” except for the South Korean won, Oxford Economics said.

In particular, the economies of China, India and the Philippines will “grow relatively fast” in the upcoming decades and bring “significant further catch-up-driven real exchange rate appreciation” in their currencies, Oxford Economics added.

In the near term, its said Asian currencies would appreciate as risk appetite benefits them while the US’ twin deficits—budget deficit and current-account deficit—weigh on the dollar.

In the case of the peso, Oxford Economics projected it to further appreciate by more than 2 percent by the end of 2021, following a more than 5-percent gain in 2020.

The peso strengthened last year as the current account swung to a surplus estimated at 3.3 percent of GDP, reversing the deficits recorded in the previous years.

The surplus came on the back of a sustained slump in the importation of goods which were bought in dollars, as exports gradually recovered from the pandemic-induced weakness in global trade.

While the current-account surplus strengthened the domestic currency, economists had warned that it nonetheless reflected sluggish economic recovery as external trade-in-goods and capital investments slowed.

Oxford Economics projected the Philippines’ current account to remain at a surplus in the next two years, although narrowing to 1.1 percent of GDP in 2021 and 0.2 percent in 2022.