Both technical and fundamental data support a bullish bias for the Philippine peso against the US dollar (bearish USDPHP). Let me show you how.
Technically, the USDPHP pair has continued to trade within a descending channel after it broke down from a symmetrical triangle formation. Now, as long as this current trend persists and until a reversal takes place, it is likely that the pair would resume moving along its present direction. Zooming closer, the Philippine peso has been exchanging at around PHP 43.500 to a dollar for the past several days. In any case, any increase in buying appetite for the peso could have it appreciate back to PHP 42.00.
On the fundamental side, the Bangko Sentral ng Pilipinas (NYSE:BSP) is set to publish its monetary policy decision some time today. the central bank is widely expected to hike its benchmark interest rate by 25 basis points to 4.25% due to the previous higher-than-expected inflation rate in the Philippines and the jump in the commodity prices, particularly crude oil, because of the political turmoil in the Middle East.
The year-over-year inflation in the Philippines in February surged to 4.3%, surpassing the central bank’s forecast of only 3 to 4.1%. January’s figure was only at 3.6%. Given the unexpected rise in inflation, it is normal for the BSP to adjust its monetary stance to control any changes in prices. One way that it could so is by raising its overnight interest rates. Such would discourage excess lending and spending that would therefore dampen inflation.
The political turmoil in the Middle East, first it was Egypt and now it’s Libya, has been causing a lot of panic in the financial markets as well. The WTI crude oil has suddenly jumped back to above $105.00 per barrel due to concerns that the “war” in Libya could have a negative impact on the supply of oil.
While some economists believe that the BSP could just follow the European Central Bank (ECB) in keeping its rates unchanged and just being a little more hawkish in its statements, either of the two would still be bullish for the Philippine peso. You see, being “hawkish” means that inflation is still expected to rise in the future. Such would then be, of course, “priced in” by the market. An interest rate hike, however, would generally quickly reflect on the peso.
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