HSBC sees peso rising to 43.50-44/dollar this year

MANILA, Philippines - The peso is likely to strengthen between 43.50 to 44 to the dollar this year as unemployment woes in the Western economies and positive fundamentals on the domestic front continue to lift the local currency, a top executive at British banking giant Hongkong and Shanghai Banking Corp. (HSBC) said yesterday.

Jose Arnulfo Veloso, HSBC’s head of treasury for the Philippines, said external factors such as the high jobless rate in the US and the eurozone and a steady Chinese yuan will keep the peso strong for the rest of the year.

The peso has averaged at about 46 against the greenback this year. Yesterday, it closed four centavos higher to 45.55 from a day earlier.

The Bangko Sentral ng Pilipinas (BSP), meanwhile, said it expects the peso to fall within the range of 46 to 49 to the dollar this year.

Veloso said the peso’s appreciation is in line with the movement of other major currencies in the Asian region, as emerging economies are seen to lead in the recovery from the global financial crisis.

The Singapore dollar is seen to stay at the 1.32 to 1.36 range againt the US currency, while the yuan is likewise expected to move within the range of 6.40 to 6.50 to the dollar.

Veloso added that interest rates are also expected to remain depressed at the four to 4.75 percent level for the rest of the year.

However, the HSBC executive expressed concern over the prolonged “inactivity” or the lack of volatility of the markets.

Historically, a prolonged state of inactivity, represented in technical charts as a plateau, is a precedent to a sudden or sharp increase or decrease.

“Let us not get lulled into complacency,” he said, warning nvestors to be cautious and keep a close watch against sudden changes.

He added that external developments will likely be more critical than local developments, except in the case of an extremely negative perception of the May national elections.

“Analysts and fund managers take the national elections very seriously,” Veloso said, adding that a negative view of the democratic exercise would put pressure on the Philippine economy and its ratings.

Meanwhile, a recnt business survey points to further acceleration and strong economic activity in the second quarter of the year.

Consultancy and information firm Dun and Bradstreet (D&B) released yesterday its Business Optimism Index (BOI) for the second quarter of 2010. It covered 251 businesses, of which a hundred are locators at the export processing zones.

The survey showed that sales, net profits and inventories are expected to register significant growth in April to June this year. The construction, transportation/communications/utilities, retail, services, manufacturing and information technology sectors are the sectors seen to register strong growth in the second quarter of the year.

Inventory rose to 24 percent as against 13 percent in the first quarter. All sectors, except retail, registered positive increases.  Demand is expected to increase in the second quarter at the start of the new school year in June as well as the income in the hands of consumers due to election spending and remittances from overseas Filipinos that both peak in May. 

In contrast, new orders for the second quarter are expected to slow down as majority of the orders and spending were already made for the pre-election and election period.

Selling prices fell slightly, reflecting the benign state of inflation against increasing sales.