Peso seen hitting 46:$1 by midyear, 52:$1 by end-2009

Erik dela Cruz / Reporter

Wednesday, 15 April 2009 21:09

THE next nine months may see wild swings in the foreign-exchange rate as the peso may gain further strength up to 46 per dollar by the middle of this year, but may eventually lose ground in the second half and end the year at 52, according to a new research report from Metropolitan Bank & Trust Co. (Metrobank).

The peso has fallen by 0.9 percent so far this year, slowly recovering after an 1.7-percent loss in the first quarter.

“Currently, the peso has been appreciating alongside other currencies as risk aversion has tapered off for now amid the big upward strides in major equity markets around the globe,” said Ildemark Bautista, Metrobank head of research.

“The question, therefore, on everyone’s mind is if this is only temporary or will depreciation still be in the cards,” he said.

The peso is bound to appreciate in the near term, he said, with support coming from remittances of Filipinos abroad which traditionally surge during this time of the year, and with dollar requirements weak at the same time.

Remittances are usually on an upswing a few weeks before the start of a new school year in June.

“In the very near term...trends point to a direction towards the 46-per-dollar level going towards midyear as OFW [overseas Filipino worker] inflows dominate amid current market optimism,” he said.

But Metrobank’s research team, he said, was maintaining its view of peso depreciation toward the end of 2009, “perhaps running as high as 52…50 per dollar, or at least going up to the 51 level.”

The continued weakness of the Philippine economy and the need to prop up growth through bigger deficit spending will contribute to weak sentiment toward the peso, Bautista said.

Demand for dollars, however, may rise even before the import season in the third quarter, capping the peso’s gains in the second quarter, he said.

With dollar requirements normally increasing and remittances slowing down in the third quarter, he said the peso may be bound to again depreciate at that time.

“Expectations such as this might temper the current peso strength, as importers might buy earlier and produce marginal dollar demand right now instead of in the third quarter,” Bautista said.

The recent rally on Wall Street reflected investors’ upbeat mood as companies start reporting better earnings, which could be the result of the relaxation of mark-to-market (MTM) rules, he said.

“MTM rules require that assets not being held to maturity should be priced at market levels, and in a poor market environment such as the one right now, this means markdowns and lower earnings [as writedowns are treaded as expenses] or lower asset prices,” he said.

“With these rules now being relaxed, it appears that markets are riding along, willing to suspend disbelief right now about how bad things might be, giving the equity markets a big boost.”

Still, he said some investors viewed the recent bull run in the US with caution as it appeared “too much, too far, too soon,” and that a correction might be in the offing.

The peso rose on Tuesday to as high as 47.65 per dollar, its strongest level in two months following the greenback’s broad weakening in the previous day, which indicated waning risk aversion.

In a report released last week, Moody’s Investors Service said the peso must be kept stable if the government wants to support economic growth.