THE local currency may continue to weaken against the US dollar through 2022, on the back of the expectations of a Fed hike and the looming threat of Omicron on the global economy.
On Tuesday, data from the Bankers’ Association of the Philippines (BAP) showed that the peso hit P51.3 to a dollar, down from the P51 to a dollar on Monday.
Rizal Commercial Banking Corporation (RCBC) economist Michael Ricafort said the peso traded on weaker market sentiment on Tuesday due to the record daily global Covid-19 cases and the rising infections in recent days.
Unionbank economist Ruben Carlo Asuncion said he sees this weaker peso trend persisting towards the year.
“We think this will be the trend this 2022 mainly because of the hawkish US Fed and the market anticipating three rate hikes from the US Fed this year. The strong US dollar narrative is very much intact even with the threat of Omicron,” Asuncion said.
Among the major catalysts of the foreign exchange trade in the country, according to Ricafort, are a further reopening of the economy towards greater normalcy with the possible easing of Alert Level, and the accelerated vaccination and, eventually, herd immunity by early 2023.
Ricafort said election-related leads could also partly determine the direction of the exchange rate, though the winning Philippine president is given a honeymoon period of about 6 months to 1 year for any signals and clearer direction on policy priorities, reform measures, and governance that would matter on the economy and fiscal performance and debt management.
Overall, the RCBC economist is hopeful that the peso will regain footing later on.
Asked whether he sees a weaker peso as the overall trend for 2022, Ricafort said: “Hopefully not, since higher Covid-19 cases that resulted in higher NCR Alert Level to 3 tend to slow down economic recovery prospects and could also slow down importation activities.”
Trade gap fears
The Philippine peso’s decline beyond 51 per dollar, for the first time since April 2020, came amid speculation the nation’s trade deficit will widen as domestic demand improves.
The peso fell as much as 0.5 percent to 51.27, the weakest level since March 2020. The currency is the worst performer in emerging Asia over the past month with a loss of 1.7 percent against the dollar.
“Into 2022, we will watch the trade deficit which may widen further as domestic demand recovers, a negative to the peso,” said Irene Cheung, a senior strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The next barrier is 52.”
Strategists at Nomura Holdings Inc. and Barclays Plc forecast more losses for the peso in coming months due to the widening current-account deficit and a central bank that wants to keep monetary policy accommodative in contrast to the hawkish Federal Reserve.
A seasonal boost from remittances had catapulted the peso as a regional outperformer in the first three weeks of December but those flows have since dwindled.
The peso had attempted to breach the 51 barrier in late September before pulling back. Bangko Sentral ng Pilipinas Governor Benjamin Diokno said at that time authorities can “provide dollar liquidity” if there’s excessive volatility in the market.
With a report by Bloomberg