Peso seen bouncing back to 54:$1 this year

MANILA, Philippines —  The peso is expected to sustain its momentum and appreciate further to the 54 to $1 level this year after ending a two-year slump amid the expected rate cuts by the US Federal Reserve and the Bangko Sentral ng Pilipinas (BSP).

In its Asia FX Outlook 2024, ANZ Research said the peso may strengthen to 54.50 by the end of the year from the end-2023 level of 55.70 to  $1.

ANZ Research said the local currency would likely face less headwinds from global financial market uncertainties this year.

“We forecast the peso-dollar rate will be at 54.50 by year-end 2024,” it said.

ANZ  sees the peso strengthening to 55.20 by March and 55 by June before piercing the 54 to $1 level in September and 54.80 to 54.50 by December.

It expects the peso to further strengthen to the 53.50 to $1 level by the end of 2025.

As the  dollar continues to weaken, ANZ said the peso would be driven by its current account dynamics and growth outlook.

It added that remittance flows from overseas Filipino workers (OFWs), one of the strongest drivers of the current account, would face headwinds due to a slowdown in the US labor market, while the business process outsourcing (BPO) industry would likely grow steadily this year.

ANZ said domestic demand in the Philippines is unlikely to rise sharply due to elevated interest rates, which will weigh on imports.

Overall, ANZ expects a smaller current account deficit this year as portfolio inflows have also begun to improve, with net inflows in November last year.

Dutch financial giant ING also sees the peso ending the year at 54.50 from 55.37 to $1 in end-2023.

ING said the Philippines’ current account deficit is expected to narrow to $10.3 billion or 2.1 percent of gross domestic product (GDP) this year from about $11.1 billion or 2.5 percent of GDP last year.

“Thus, current account dynamics for the Philippines suggest that the peso will be on the back foot unless foreign investment flows return to prop up the currency,” ING said in its FX outlook 2024.

According to ING, recurring trade deficits have resulted in the Philippines running current account deficits for some time, indicating a fundamental depreciation trend for the peso.

It added that a combination of weak exports and dependence on energy imports contribute to making trade deficits chronic for the Philippines.

“Exports remain heavily dependent on electronics shipments, and with global trade expected to remain subdued next year, we can expect the current account to remain in deep deficit,” ING said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the peso is seen trading between 54 and 57 to $1 this year after emerging as one of the best performing currencies in Asia last year.

“For 2024, the dollar/peso exchange rate could range at 54 to 57 levels, but the peso’s performance would be a function of global crude oil prices, easing US, global and local inflation toward central bank targets, possible Fed rate cuts that could be matched locally and could support further downward correction in the dollar versus major global or emerging market currencies,” Ricafort said.

Ricafort said the immediate major support of 55.30 levels, which help keep intact the underlying upward trend over the past five months, could potentially re-test 55 and then the immediate low of 54.30 posted on July 17, 2023.