Fitch Solutions, a unit of Fitch Group, on Thursday revised its 2021 foreign exchange forecast to P47.50 against the US dollar from an earlier estimate of 50.10 per greenback.
It said the peso was also expected to average 49.59 against the dollar this year, stronger than its previous forecast of 49.75 a dollar as the country’s strong macroeconomic fundamentals continue to support the local currency amid the global health crisis. The peso closed at 48.07 against the dollar on Dec. 23, up by more than 5 percent since the start of the year.
“We believe the tailwinds that have driven the unit through 2020 will continue into 2021 and rising foreign interest would bolster further the unit,” Fitch Solutions said.
It said the peso was an outperforming currency in 2020, strengthening 5.3 percent this year, compared to the 3.6-percent for the Asian dollar index.
Fitch Solutions said among the key drivers of the peso’s strength were weak domestic import demand, the Philippines’ strong external fundamentals, surprises to the upside from OFW remittances and the Bangko ng Sentral Pilipinas’ policies to curb market volatility.
“We believe these factors will broadly continue over the near term and will be aided by further dollar depreciation. In addition, higher risk appetite amongst investors focusing on low external financing and fiscal risks would bolster further the unit,” it said.
It said, however, it was expecting “a gradual depreciation over the longer term.”
“We have revised our exchange rate forecast from an average P50.10/US$ to an average P47.50/US$ through 2021, reflecting an expectation for the unit to trade in a range of the P46 to P50/US$ trading range towards the latter half of the year,” it said.
From a technical perspective, Fitch Solutions said the peso appeared “to be approaching the end of its appreciation.”
BSP Governor Benjamin Diokno earlier said in a briefing the peso remained resilient and stable amid the COVID-19 pandemic and its prolonged impact to global economies.
Diokno said the peso appreciated against the US dollar by 5.4 percent as of Dec. 10 this year relative to its end-December 2019 level.
“The local currency has also performed better compared to other Southeast Asian currencies and appreciated vis-à-vis the US dollar along with the Chinese yuan, Taiwanese dollar, South Korean won, and the Japanese yen, year-to-date,” Diokno said.
He also cited analysts’ expectation that the peso would remain strong in the near term and maintain its resiliency as one of Asia’s top-performing currencies.
“The peso’s strength can be attributed to sound macroeconomic fundamentals characterized by a benign inflation environment, a strong and resilient banking system, prudent fiscal position and a sufficient level of international reserve buffer,” said Diokno.
“The peso should continue to reflect emerging demand and supply conditions in the foreign exchange market as well as the continued soundness in the country’s macroeconomic fundamentals over the near term,” he said.