UBS raises 2010 foreign exchange forecast for peso at 46 to $1

MANILA, Philippines - The Union Bank of Switzerland (UBS) has raised its 2010 foreign exchange forecast for the Philippines to P46 to the dollar from P48 previously on expectations that there will be more dollar inflows next year.

The revised forecast of P46 against the greenback is within the government’s foreign exchange forecast range of P46 to P48 to the dollar for 2010.

UBS noted that the peso would likely perform better than the Singapore dollar and the Malaysian ringgit next year.

“Current account surpluses, along with comparative leniency on the part of central banks towards currency appreciation, could allow for relatively more strength against the US dollar by end 2010 for the Thai bath and the Philippine peso than for the Singapore dollar and Malaysian ringgit,” UBS said in its latest report on the Association of Southeast Asian (ASEAN) countries.

UBS said that along with Thailand, the Philippines is likely to sustain its current account surplus on continued dollar inflows next year even as it noted that the surpluses may diminish in size.

“In our view, this, combined with the balance of investment flows, should favor stronger currencies over an eight-month timeframe. Here, we are assuming that investment flows reflect real and financial sector investors’ efforts to search out cheaper production bases and stronger growth than available in developed markets,” it said.

Currently, the peso has been trading at the P48-to-the-dollar level.

In the first quarter of the year, the country’s current account — a record of trade and remittances — recorded a surplus of $2.2 billion, higher by 69.2 percent compared to the $1.3 billion surplus in the same period last year.

The marked improvement was due to higher services and current transfers net receipts coupled with lower trade-in-goods deficit, the Philippine central bank has said.

The trade-in-goods deficit narrowed by 22.9 percent to $2.1 billion from the $2.8 billion deficit recorded in the same quarter last year, given the larger contraction in imports of goods of $5.2 billion compared to that of exports of goods of $4.6 billion.

The global economic slowdown continued to take its toll on exports and imports which both posted double-digit declines following the recession in the economies of our traditional trading partners, the central bank also said.