Peso seen to average at 52.10:$1 this year

MANILA, Philippines — Fitch Solutions Macro Research expects the peso to average 52.10 to $1 this year despite flirting with the 50 to $1 barrier as talks between the US and China resumed.

In its latest currency forecast “PHP: appreciatory run to lose steam, but rout less likely,” Fitch Solutions said the Philippine peso’s recent strengthening would likely bounce off resistance in the near term, as the benefits from external tailwinds fade.

“Following dovish tilts from the (US) Federal Reserve and the European Central Bank in June, the peso has strengthened, benefiting from a wider rally across risk assets on US dollar weakness,” it said.

The research arm of the Fitch Group said news that US President Donald Trump and Chinese President Xi Jinping had agreed to meet on the sidelines of the G20 summit in Osaka, Japan raised hopes of a cooling of trade tensions, which had weighed on investor sentiment towards the region.

“However, with the potential for more positive trade dynamics already priced into the peso via the recent appreciation, we believe markets will need an upside surprise boost for the peso to break-through the resistance level 51 to $1,” Fitch Solutions said.

It added the dovish shift by developed market central banks could entice the Bangko Sentral ng Pilipinas (BSP) to begin easing more aggressively, weighing on the peso’s attractiveness.

The BSP’s Monetary Board opted to hold its interest rates at its June 20 meeting, which resulted in the peso’s appreciation.

“However, we believe slowing Philippine economic growth, limited fiscal stimulus and the dovish shift by developed market central banks will create a window of opportunity for the BSP to cut further, from 4.5 percent to 4.25 percent by end-2019, alongside other easing measures,” Fitch Solutions said.

The peso averaged 52.21 to $1 in the first half of the year and could test the support level of around 52.50 to $1 if risks to the short-term outlook stem primarily from a spike in volatility driven by an external event.

“We believe the risk-on period will run its course as slowing global growth raises investor expectations for Fed rate cuts. This in turn will result in recurring bouts of risk-off sentiment as growth slows despite monetary easing, with a potential for a more protracted period of risk aversion.” Fitch Solutions said.