Peso seen gaining to 41 to a dollar

The peso will tend to strengthen against the dollar in the coming months and possibly trade near 41 by year’s end, according to separate reports on the Philippine economy.

“The peso-dollar rate appears to have an appreciation bias based on technical analysis, although the strength of the US dollar is beginning to show in the currency markets,” said a joint research of First Metro Investment Corp. and the University of Asia and the Pacific.

Another study from the Washington DC-based International Institute of Finance (IIF) echoed this, saying that recent decisions of monetary authorities could push the peso to gain close to P2 against the greenback within the year.

FMIC and UA&P said that in January, the exchange rate improved slightly for the peso to an average 43.62 to a dollar from 43.65 in December. The IIF observed that the peso has firmed up to 42.90 by early March.

“With the influx of foreign funds into the country’s stock and bond markets, the peso should remain relatively firm,” FMIC and UA&P said.

“Similarly, low inflationary pressures and improved purchasing power in the last few months of 2011 gave incentive to higher level of domestic spending sustaining demand for the local currency,” they added.

There was also an influx of dollars as the Treasury raised $1.5 billion when it issued global bonds in January while local firms issued their own dollar bonds in February.

Aside from that, trading at the Philippine stock market reached record highs and induced the continued higher inflows of dollar funds from portfolio investments.

FMIC and UA&P observed further that the prevailing financial crisis in Europe has sustained demand for local currencies in the Association of Southeast Asian Nations.

“The short-term peso outlook is firm as the region’s economies remain vibrant and the country expecting a formal credit upgrade,” they said.

Even then, FMIC and UA&P said that in the coming months, they expected higher demand for dollars due to higher crude oil prices and seasonal rice imports to soften whatever strength they were seeing in the peso.

On the other hand, the IIF said the Bangko Sentral ng Pilipinas, unlike most of its peers, maintained positive real interest rates during the global financial crisis and was unlikely to act precipitously considering the risk of rising inflation due to higher oil prices and rising domestic demand.

“By keeping to its [2011 inflation] target range of 3 to 5 percent for this year and next, the authorities have made it clear that they are aware of these risks and are likely to move cautiously in easing policy further,” IIF said.

“The policy bias for exchange rate appreciation has also been reinstated, which could lift the peso from 42.90:$1 in early March to close to 41:$1 by the end of 2012,” it added.