Peso seen to continue lingering on weak side

THE local currency is expected to linger on the weaker side in its trade against the greenback in the coming months, as foreign exchange investors prefer “safe haven” currencies over “Deltaplagued” ones, private analysts said in a research paper.

In its August issue of “The Market Call,” economists at the University of Asia & the Pacific (UA&P) and First Metro Investments Corp. (FMIC) said while the peso has depreciated significantly against the dollar, recovery is not yet in sight for the currency.

UA&P and FMIC economists said the Philippine peso depreciated against the US dollar by 3.8 percent in July on the back of the dollar’s strength amid impressive manufacturing and job gain.

The economists also said the risk aversion tone in global markets due to the Covid-19 delta variant, high crude oil prices and Fitch’s outlook revision for the Philippines from stable to negative contributed to its weakness.

The local currency trading was closed on Monday in light of National Heroes’ Day. In its previous trading day, the peso hit P49.955 to a dollar. The average peso value against the greenback in August last year is at P48.843.

UA&P and FMIC economists said their technical indicators point to a sustained weakness in the local currency.

“This is likely to happen as investors prefer safe havens such as the US dollar as the countries are plagued by the Covid-19 variants. Domestically, the balance of trade deficits closely hovering at around $3 billion per month recently adds to the pressures on the peso, especially as the import demand expands with the nascent but strong recovery,” analysts said.

Just last month, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno shrugged off worries on the peso, saying structural foreign exchange flows to the country are expected to remain strong in the coming months.

“While short-run fluctuations in the peso are affected by market sentiment, its medium- to long-term movements are largely supported by economic fundamentals,” Diokno said.

“Looking ahead, we expect the peso to be supported by structural foreign exchange flows such as overseas Filipino remittances, business process outsourcing receipts and eventually by earnings from tourism activities,” the BSP chief added. “Furthermore, foreign exchange inflows related to foreign direct investments are also expected to help shore up the currency.”