Peso rebound leaves external pressures unresolved

From AB Capital's The Opening Bell: Three Moves

Event

The Philippine peso rebounded 14.5 centavos to P64.025 per US dollar on Wednesday after President Marcos signaled support for the currency, ending seven consecutive record low closes. The Bangko Sentral ng Pilipinas (BSP) recently raised its policy rate 50 basis points to 5.5%, while September reserves fell 8.3% year-on-year to US$99.997 billion.

View

We think the rebound reflects improved sentiment and modest oil price relief, with underlying pressures still evident in dollar demand and external financing conditions. Reserves cover 6.3 months of imports, giving the BSP capacity to smooth volatility, although sustained intervention could limit future flexibility.

Catalyst

Federal Reserve guidance, oil prices and fourth-quarter seasonal remittances should drive near-term trading. A move from P64 to P65 per US dollar would raise the peso cost of unhedged dollar imports by roughly 1.6%, potentially adding to inflation pressure and complicating the BSP's policy outlook.

Action

In our view, peso stabilization requires more durable foreign exchange inflows alongside lower import pressures. We would maintain caution on rate-sensitive equities and businesses with significant unhedged dollar costs, while tracking the currency, reserve trends and bond yields before reassessing valuation assumptions.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.