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The conventional wisdom is that the Philippine peso appreciates heading into Christmas, because of an increase in remittances flows from overseas Filipino workers in the lead-up to the festive season.  Although the peso did rise consistently in the run-up to Christmas between 2000 and 2009, the pattern has become quite erratic since 2010. Although economists at ANZ bank expect remittances to decline over the coming months, the improving trade balance could be sufficient to see a return of peso strength into Christmas this year.

Key quotes

“Remittances from overseas Filipino workers (OFW) is generally 15-20% higher in December than the average monthly flows between January and November. It is this rise in remittances that has led to the conventional belief that the Philippine peso (PHP) appreciates heading into Christmas. However, the PHP’s year-end strength has become inconsistent, especially in recent years.”

“We expect remittances in H2 2020 to decline by 9.7% YoY, which will result in the lowest end-of-year flows seen in years. However, the Philippine trade deficit is expected to continue improving, courtesy of imports staying low due to weak domestic demand, and exports beginning to improve on the back of the recovery in global trade. The difference between remittances flows and the trade deficit will nevertheless be the key determinant of whether the peso will strengthen heading into Christmas this year or not.”

“The December months where the combined trade balance and remittances flows show an improvement tends to result in a stronger PHP. We forecast an increase in the combined balance this December, which should see a return of peso strength into year-end.”