The Philippine peso is expected to perform stronger than earlier expected in 2020, but such strength is likely to fade in the long term, Fitch Solutions Macro Research said Tuesday.
In a commentary, Fitch Solutions said it now expects the peso to average P51.70:$1 this year, stronger than the earlier forecast of P53.00:$1.
"Our revision partially reflects a stronger-than-expected starting point for the unit in 2020, but also broad support for Asian FX on the back of a 'phase one' US-China trade deal expected to be signed in early 2020," the commentary read.
US Trade Representative Robert Lighthizer on December 13 said that representatives from both countries would sign the trade deal agreement in the first week of January.
"The peso ended 2019 at P50.66:$1, stronger than our expectation of P52.30:$1, thanks to improved investor sentiment towards risk assets in the last months of 2019, as fears of a global recession abated alongside improving trade developments," said Fitch Solutions.
"Indeed, the peso’s total return, including the interest return, of 8.7% in 2019 only trailed the Indonesian rupiah and Thai baht amongst Asian currencies, and volatility of the PHP/USD unit reached all-time lows (as measured by the one-month option volatility)," it added.
Fitch Solutions said it expects the Philippine peso to trade between P50-P52:$1 in the first six months of the year, and depreciate further in the latter part of 2020.
"As 2020 progresses, and through to 2021, we expect the Philippines’ widening current account deficit, rebounding (albeit modest) inflation figures and downside risks to global growth to prompt depreciation of the peso," it said.
"A combination of fiscal stimulus and widening current account deficit will aggravate the Philippines’ twin deficit risks, weakening its attractiveness relative to its regional peers Thailand and Malaysia," it added. —KBK, GMA News