Peso to climb further on weak US payrolls report

THE PESO will likely strengthen against the dollar this week due to the weaker-than-expected jobs data out of the US and ahead of an anticipated tightening move from the Federal Reserve next week.

The local currency finished higher on Friday, closing at P49.55 against the greenback, sharply higher by 20 centavos from its P49.75 close in the previous session.

Week on week, the local currency likewise gained 20 centavos from its P49.75-per-dollar finish last May 26.

An economist from a local bank said the peso may trade sideways versus the greenback this week after US non-farm payrolls came in lower than market expectations and as investors are now waiting for the anticipated Fed rate hike during the regulator’s Federal Open Market Committee (FOMC) meeting on June 13-14.

“The dollar might depreciate this week due to softer-than-expected US labor reports and caution ahead of the monetary policy meetings of the European Central Bank (ECB) and the US Federal Reserve,” Land Bank of the Philippines Market Economist Guian Angelo S. Dumalagan said in an e-mail over the weekend.

Similarly, a trader said in a phone interview on Friday that the market’s reaction follow the US non- farm payrolls ( NFP) report will dictate the exchange rate’s direction for the week.

“For this week, the NFP and how the market reacts to it, that’s where we will see how the exchange rate will move. The dollar, in general, will trade higher if NFP will come out surprisingly high and low should it come out weak,” the trader said.

The trader projects the peso to play within P49.60 to P49.85 versus the greenback should US job gains be upbeat, but should it be softer from market expectations, the local currency could trade higher within P49.30 to P49.60 to the dollar.

The US Labor Department reported job growth last month slowed to 138,000 after the manufacturing, government and retail industries lost employees in may. These were 66,000 short from figures seen in March and April.

The Fed and ECB will hold their monetary policy meetings on June 13-14 and June 8, respectively.

“The greenback’s projected decline might be minimal because of continued expectations of another US interest rate hike next week,” Mr. Dumalagan said.

Markets have priced in that the US central bank will hike interest rates in their meeting next week. If realized, this will be the second monetary tightening this year, two months after regulators lifted interest rates in their March meeting.

For 2017, markets are anticipating the Fed to increase rates at least two to three times.

“The scheduled testimony of former US FBI director James Comey before the Senate Intelligence Committee on June 8 may also reduce the dollar’s appeal,” Mr. Dumalagan said.

He added the dollar’s projected slump for this week could be reversed should US non-manufacturing data reveal to be better from market expectations and should the ECB’s meeting appear to have dovish remarks.

“New developments that could raise the chances of another US rate hike next week could also alter the dollar’s forecasted downward trajectory,” Mr. Dumalagan said.

For this week, he sees the exchange rate settling within P49.50 to P50 per dollar.

For his part, BDO Unibank, Inc.’s Chief Market Economist Jonathan L. Ravelas said in his weekly market outlook: “The week’s close at P49.55 continues to support the currency to try the P49.40–49.50 support level. Next week’s trading range is seen within the P49.30–49.60 levels.”