Peso Rebound A False Dawn

A failure to extend the sharp gains made in the wake of Bangko Sentral ng Pilipinas (BSP)'s 50bps interest rate hike at its July 17 meeting and the hawkish comments that followed the central bank's aggressive rate decision bodes ill for the near-term prospects of the Philippine peso. The unit's inability to make a clear break beyond eight-month trendline resistance in the PHP44.00/US$ area has now erased much of the new-found optimism towards the peso, and could presage a move back towards PHP45.00-45.50/US$. In the event that the peso fails to hold support in this region, further downside towards PHP46.50/US$ would become a very real possibility.

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