The local currency is still expected to end the year strong amid the anticipated US Federal Reserve liftoff at its meeting at the end of the year, a local bank economist said.
This, according to ING Bank Manila economist Joey Cuyegkeng, is due to the fact that the surge in remittances in the holiday season will allow the peso to move stronger in the last trading weeks of the year.
In particular, Cuyegkeng said in his latest market views that he sees the peso to end the year at around 46.80 to a dollar.
On Tuesday the local currency was broadly unchanged from the previous day’s trade value at 47.12 to a dollar, with a total trading value of $453.6 million in the day. The peso closed on Monday at 47.13 to a dollar, with total traded volume at $398.1 million.
Despite the optimism, the economist warned that there are a lot of threats to this forecast—particularly if the US dollar gains strong traction to strengthen toward year-end.
Cuyegkeng further said that if the peso breaches the 47.2 to a dollar resistance mark before the year ends, it can slide further down to 47.5 to a dollar, depending on the strength of the US economy.
“Peso at around 47.2 seems to be a strong barrier, which has been recently tested repeatedly. Maintaining this resistance level would depend on the interest-rate guidance of the FOMC [Federal Open Market Committee], which comes out with its quarterly updates of forecasts of inflation, GDP and interest rates,” the economist said.
A strong buffer, according to the economist, is the inflows from overseas Filipino workers—which are anticipated to surge toward the month of December, as families ramp up expenditures during the holiday season.
Latest data from the central bank showed that remittances in the country hit $18.41 billion in the first three quarters of the year. This is a growth rate of 4.1 percent compared to the same nine-month period in 2014.
The positive growth rate is also a recovery from the 0.6-percent contraction in August, prompting worries
that the contribution of remittances to the economy is slowing down.
This, as earlier mentioned by central bank officials, is said to rise significantly higher as, historically, remittance inflows increase in the fourth quarter of the year.
In 2014 remittances were the highest in the last three months of the year—with the peak in December at $2.18 billion.
The FOMC will be having its last policy meeting for the year on December 15 and 16, while the Bangko Sentral ng Pilipinas has calendared its last meeting for the year on December 17.