Thailand currency

Peso goes from best currency in emerging Asia to worst currency in a week

(Bloomberg) – The Philippine peso became the worst performing currency in Emerging Asia in December, after being the best, as the seasonal increase in remittances dried up. Strategists see the bearish momentum continuing.

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The currency fell around 2% last week, wiping out any gains from the first three weeks of December that had made it the regional outperformance. Nomura Holdings Inc and Barclays Plc are among those forecasting more losses in the coming months.

The peso faces headwinds from an accommodating central bank which left interest rates unchanged last month and indicated it would maintain an accommodative monetary policy, unlike a Federal Reserve which is forecasting hikes rate in 2022. It could also come under pressure from a rising current account. deficit.

“The peso is likely to be among the laggards in a world of otherwise higher emerging market real returns,” said Ashish Agrawal, macro FX and EM strategist at Barclays in Singapore. The deterioration in the current account balance and expectations that the BSP will normalize its policy at a slow pace could put more pressure on the peso, he said.

The peso climbed nearly 2% in the last quarter through December 23, supported by increased remittances and optimism about the resumption of economic growth. December’s remittances were the highest of the year since 2009.

The currency fell about 6% in 2021 to close at 51 per dollar on Friday. Barclays expects the currency to drop to 51.50 by the end of June, while Nomura sees 51.7 by the end of March. History shows it slipped in January for five of the past six years, as support for remittances waned.

Meanwhile, the central bank last month revised its current account estimate for 2021 from a deficit to a surplus, and forecasts the deficit will more than double to around $ 10 billion in 2022.

Policy divergence

The peso ended 2021 testing a key technical level around 51 against the dollar. A breach opens the door for it to weaken to 51.81, the 61.8% Fibonacci retracement of the pair’s decline from October 2018 to June 2021.

Traders will look to inflation and trade data this week for clues on the way forward for monetary policy going forward. Governor Benjamin Diokno said preserving monetary support will help the country recover from the pandemic.

“The BSP will maintain an accommodative policy to support growth, and if you keep interest rates low, the peso will depreciate,” said Jonathan Ravelas, chief market strategist at BDO Unibank in Manila.

Here are the main Asian economic data expected this week:

  • Monday January 3: Singapore GDP; Indonesian inflation and manufacturing PMI in India, Malaysia, Indonesia, South Korea and the Philippines

  • Tuesday January 4: Caixin China Manufacturing PMI

  • Wednesday January 5: Thai inflation; Retail sales in Singapore

  • Thursday January 6: Caixin China services PMI, Taiwan CPI

  • Friday January 7: monetary gains from labor in Japan and purchases of foreign bonds; India’s annual GDP estimate 2022

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