Things Are Looking Up for the Philippine Peso

(Bloomberg) -- Things are looking up for the Philippine peso after it suffered one of the biggest losses in the region in the first half of the year.

The peso has outperformed all its Asian peers since mid-year, supported by increasing expectations of another central bank rate hike at the Aug. 9 policy meeting. Technical indicators suggest the currency has more room to recover.

Charts show that bullish momentum is growing for the peso.

Spot dollar-peso has fallen below its 50-day moving average support for the first time since May 11. The moving average convergence-divergence momentum indicator has declined bearishly below the signal line and zero. Another momentum signal, the slow stochastics, also remains bearish.

The peso lost 6 percent against the dollar this year and was at 53.13 on Friday. Immediate support for the dollar-peso is seen at 52.643, which is the 23.6 percent Fibonacci retracement of move up between January 5 to June 27.

“The break of 53 opens the door to a much larger correction for the greenback towards the 52.50-52.75 levels,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc., the nation’s largest bank by assets. “This is supported by fundamentals. The market is anticipating tighter monetary policy after the central bank signaled strong action to address inflation.”

Bangko Sentral ng Pilipinas reiterated this week it is ready to take “decisive and measured policy actions” to bring inflation back to target of 2 percent to 4 percent next year. Governor Nestor Espenilla pledged “strong” action at the August rate meeting after raising the benchmark rate by a total of 50 basis points in May and June to 3.50 percent.

“The market has already priced in the strong dollar,” Ravelas said. “The market is now looking at interest-rate hikes on the domestic front. And it’s not a question whether the central bank will raise rates but by how much.”

--With assistance from Ditas Lopez.

To contact the reporter on this story: David Finnerty in Singapore at dfinnerty4@bloomberg.net

To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Patricia Lui, Andrew Janes

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