The Philippine peso, which now hovers around P48 to the US dollar, is more on the defensive side and can still accommodate a little depreciation at the right time, an American foreign exchange currency strategist said.

 Robert Lynch, JP Morgan Private Bank global head of foreign exchange strategy, told Business Bulletin the Philippine peso is not dramatically overvalued but it can afford a little depreciation vis-à-vis the currencies of countries in the region.  

PESO - PH peso overvalued, says bank forex strategist
Philippine bank notes / Photo courtesy of the Bangko Sentral ng Pilipinas. (Manila Bulletin)

“It is a little bit more defensive than others … the peso could go to depreciate a little bit,” he said even as he also equally stressed that he does not think of the local peso as excessively overvalued.

 Any move to devalue a currency though is a function of the central bank’s overall monetary policy, he said citing that central banks are sensitive to movements and pace of their currencies against other currencies.

Lynch also urged for comparison with other currencies among competitors in the region. The Philippine peso is one of the best performing currencies in Asia. It now hovers around P48 to the greenback from P50-P52 at the start of this year.

The strong peso has made Philippine exporters grumble as their exports have become more expensive in the international market and they get lower peso yield. On one hand, a strong peso benefits importers as imports become cheaper.  

“The strong peso puts exporters at relative disadvantage versus what they might have otherwise anticipated at the beginning of the year,” he said noting that exporters have to find ways to make up for say the five percent appreciation of the peso.

Alternatively for importers, the strong peso improves their purchasing. “So, there’s a flip side to it so when you’re buying because if you’re buying oil and gas for example, it does offer an advantage in that regard,” Lynch said.

But, he said, it could be that the current rate of the peso may have already factored in all the developments and the impact of the global pandemic on the Philippine economy.

He cited the fact that the Philippines has been hit hard by COVID-19 and was among the highest impact because the long and hard lockdowns would definitely put a drag on domestic growth, which has a pretty big input into how a currency is valued.

“A lot of that should already been factored into the price and that’s why I wouldn’t get overly negative on it,” he said adding that from a growth perspective it is about time to “start cutting” at the right time.

“It’s due for some modest adjustment,” said Lynch, a member of the Global Markets Council, a forum for asset class specialists and portfolio managers.

Among currencies globally, he said, it would difficult for investors to position for the Philippine peso. Forex traders, he said, may be positioning for other currencies like the rubble of Russia, lira of Turkey and the Argentina peso.

Companies and fund managers do invest in forex, bonds and stocks, but during crisis in the global economy, investors run to safer investment tools mostly treasury bills where gains are more predictable than in stocks. Investors also hedge their funds in forex.

He explained that buying stocks means buying the company’s assets in anticipation for future higher price valuation. It is different with currency because buying a currency means selling it against another currency.

“I need to find out what I want to sell it against a Philippine peso into the Euro or the yen. It’s a different kind of dynamic,” said the former head Americas FX Strategy of HSBC New York.

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