BusinessWorld: Peso may test P46 level per dollar

REPORT FROM BUSINESSWORLD The Peso will likely test the P46 level against the dollar this week as worries about US credit and its housling loan market persist. "Movements on the external front will primarily dictate the behavior of the market this week. Even good economic fundamentals can barely offset worries over woes in the US housing loan market and its knock-on effect," a trader said. The central bank said on Friday the outlook for inflation remained favorable despite a dry spell that could hurt farm output. The 2007 inflation forecast remained at 2.6% to 3.1%. "We don’t expect robust remittance inflows as in the previous months that had supported the peso against the greenback," the trader said. On Friday, the peso opened at P45.62 per dollar, went as high as P45.42 and as low as P45.81 before closing at P45.46, 38 centavos stronger than Thursday’s close of P45.84. "Chartwise, the week’s close at P45.46 is viewed as a near-term correction and may extend towards the P45.35 to P45.40 levels first before it rebounds towards a test of the P46 level," said Banco de Oro’s market strategist Jonathan Ravelas. "The peso is looking more stable, but I doubt risk appetite has recovered," a trader from a foreign bank said. Meanwhile, Singapore’s United Overseas Bank (UOB) Group expects the peso to weaken to P47 per dollar by yearend as a result of slowing exports and dollars remittances sent in by Filipinos working abroad. After appreciating by 8.3% against the dollar last year, the peso continues to be one of the best performing Asian currencies against the greenback in the first half, gaining 6.7%, UOB said in its third quarter global outlook. The local currency has strengthened by 5.8% in January to June based on its nominal effective exchange rate (NEER) — the exchange rate vis-a-vis other currencies weighted by their share in either the country’s international trade or payments. "The strength of the currency, while partly due to the robust economy, also benefited significantly from the good portfolio inflows into the Philippine Stock Exchange both on local interest and foreign buying as the Asian markets remained flooded with liquidity and the Philippines provided a buying opportunity for foreign funds into a high-yielding, less risky emerging market," the bank said. While the composite index has risen by 14.4% in the second quarter, flows into the bourse will likely weaken in the second half. "Forward price-earnings ratios do suggest valuations being much higher now [but still below its historical average]. Coupled with resilient but moderating net exports and overseas Filipino workers’ (OFW) remittances, the peso is likely to trend weaker towards P47 per dollar by end-2007," UOB said. While the economy remains heavily dependent on remittances, these are excluded from the computation of the gross domestic product (GDP) — the value of goods and services produced within the country. UOB said slower global growth and fewer OFW deployment as a result of a Philippine government proposal to impose a $400 minimum wage for domestic helpers abroad could lead to slower remittance growth later this year. The bank also said the government is unlikely to sustain economic expansion for the rest of the year since government spending will slow, while exports will be tempered by lower global demand. "Nonetheless, we believe the Philippine economy will still enjoy a good year in 2007 with GDP expanding by 5.6% from the previous forecast of 4.9% on domestic drivers and exports growth holding up," UOB said. — Ehden Llave-Pelaez and Ruby Anne M. Rubio/BusinessWorld