USD/PHP Outlook:
The USD/PHP rate is currently below its recent average and near recent lows, signaling a bearish outlook. Potential upward pressure is limited given the current economic dynamics.
Key drivers:
• Rate gap: The Federal Reserve is transitioning to a more dovish stance while the Bangko Sentral ng Pilipinas continues with its monetary easing policy, widening the rate differential between the two currencies.
• Risk/commodities: Oil prices remain stable, which alleviates some immediate inflation pressures but continues to affect the risk outlook for the PHP due to the Philippines' reliance on imports.
• One macro factor: Recent declines in foreign direct investment have raised concerns about the strength of the peso, impacting overall investor confidence.
Range:
Expect the USD/PHP to hold within its recent 3-month range, facing challenges to break lower due to existing economic pressures.
What could change it:
• Upside risk: A stronger-than-expected recovery in U.S. economic indicators could boost the USD.
• Downside risk: Further political instability or economic mismanagement in the Philippines could exacerbate depreciation of the PHP.
