Peso Seen Weakening Further after Hitting P49 vs Dollar
Image Caption: A demonstrator puts a banner with an image depicting U.S. President-elect Donald Trump as he takes part in a protest against Trump, outside the U.S. embassy in Mexico City, Mexico November 14, 2016. Henry Romero, Reuters
MANILA – The peso will likely weaken further after breaching the P49 per dollar level, as the specter of higher interest rates in the US under a Donald Trump presidency causes fund outflows from emerging markets like the Philippines, analysts said Tuesday.
The peso opened at P49.13 to the dollar, after closing at an eight-year low of P49.20 on Monday. The local unit could depreciate further to P49.50 in the near term and could weaken to as much as P50 should the dollar continue to gain ground, said Khoon Goh, head of Asia research at ANZ Bank.
“There’s some scope for further near term weakness in peso and also the other regional currencies as well,” Goh told ANC’s “Market Edge with Cathy Yang.”
“I think near-term, 49.50 level is not too far away. I think that is going to be quite a key level and hopefully it doesn’t break because if that breaks I think we could easily look at 50 in the near term,” he said.
A seasonal spike in dollar remittances from overseas Filipino workers going into the Christmas season is expected to temper the peso’s weakness, he said.
Trump’s protectionist policies could stoke inflation and put pressure on the Federal Reserve to raise interest rates, Goh said.
“Higher US interest rates tend to be quite negative for capital flows into the region, and the region including the peso has in the last few years benefited from this carry trade where investors invest in higher-yielding EM (emerging market) assets,” he said.
“With US yields getting higher, the attractiveness of carry trades has lessened and that’s why we’re seeing capital being withdrawn from the region including the Philippines,” he added.
Compared to other Asian currencies, Goh said the peso’s weakness will be in the “middle of the pack,” with more trade-exposed currencies like the Taiwanese dollar and Korean won to take the harder hit.
“I wouldn’t expect peso to be the worst performer,” he said.
(Source: ABS-CBN.com)