The corrective phase of the Philippine Peso\/US Dollar exchange rate that commenced in September 2022 appears to have concluded already. This is a significant development for the local currency as it broke out from an extended eight-month consolidation range of between P54.20 to P56.40. <\/p>\n\n\n\n
Notably, the ongoing depreciation of the Peso is characterized by robust momentum. This momentum is further bolstered by the attainment of a higher high in the positive Directional Movement Index (DMI). Looking ahead, our analysis reveals a measured target for the Peso-to-Dollar exchange rate at P58.60. On a longer-term trajectory, an extended wave analysis suggests the exchange rate could reach P59.34 to $1.<\/p>\n\n\n\n
The vulnerability of the local currency is being accentuated by underlying economic conditions. Although the country’s balance of trade has shown improvement, it still remains in a deficit position. The US Dollar has gained strength due to persistent concerns about inflation, leading to a rise in US yields. <\/p>\n\n\n\n
In contrast, local interest rates have been slow to adjust accordingly. The Philippine economy faced a setback in the second quarter with GDP figures falling below expectations, limiting the Bangko Sentral ng Pilipinas\u2019s (BSP) ability to mirror possible restrictive policy actions of its US counterparts. This resulted to a decrease in the premium of Philippine benchmark 10-year yields over the US 10-year yields, reaching a two-month low of 235.7 basis points.<\/p>\n\n\n\n
The depreciation of the Peso has the potential to amplify inflationary pressures due to the Philippines’ reliance on imported essential commodities such as rice and fuel, which are sensitive to changes in the Consumer Price Index (CPI). This could further squeeze profit margins, particularly for businesses that heavily rely on imported inputs for their production. <\/p>\n\n\n\n