The Philippine peso turned into emerging Asia's worst performing currency in December from being the best, as a seasonal boost from remittances petered out. None Billionaires Are Embracing Cryptocurrency in Case Money Goes to Hell None Adams Urges Return to Class in NYC; U.S. Surges: Virus Update
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The currency dropped around 2% last week, wiping out all the gains in the first three weeks of December that had made it the regional outperformer. There are more losses predicted in the coming months, according to Nomura Holdings Inc. and Barclays Plc.
The peso is facing headwinds from a dovish central bank that left interest rates unchanged last month and signaled it would keep monetary policy accommodative, in contrast to a Federal Reserve set for rate hikes in 2022. It may come under pressure from a rising current-account deficit.
Ashish Agrawal, FX and EM strategist at Barclays, said Peso is likely to be among the laggards in an otherwise higher emerging-markets real-yields world. He said that the peso may be further weighed down by the deterioration in the current account balance and expectations that the BSP will normalize policy at a slower pace.
In the last quarter, the peso went up almost 2%, supported by a surge in remittances and optimism over the economic growth recovery. December remittances are the highest for the year since 2009.
The currency fell about 6% in 2021 to close at 51 per dollar on Friday. Barclays expects the currency to fall to 51.50 by the end of June, while Nomura expects it to fall to 51.7 by the end of March. In January, support from remittances faded, and history shows it slid in five of the past six years.
The central bank last month revised its 2021 deficit to a deficit from a surplus, and forecast that the shortfall will more than double to $10 billion in 2022, according to the central bank.
The peso ended up testing a key technical level around 51 against the dollar in the year 2021. A breach opens the door for it to weaken toward 51.81, the 61.8% Fibonacci retracement of the pair's October 2018 to June 2021 decline.
Inflation and Trade Data this week will provide traders with clues on the path for monetary policy going forward. Governor Benjamin Diokno said that monetary support will help the nation recover from the Pandemic.
Jonathan Ravelas, chief market strategist at BDO Unibank in Manila said that the BSP will keep an accommodative policy to support growth and if you keep interest rates low, the peso will depreciate.
Here are the key Asian economic data that will be released this week:
No Monday, January 3: Singapore GDP; Indonesia inflation and manufacturing PMIs in India, Malaysia, Indonesia, South Korea and Philippines.
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