Peso hits fresh low in nearly 11 years as players brace for another US tightening
THE PESO extended its slump against the dollar on Wednesday to hit another fresh low in almost 11 years, as more market players are pricing in another monetary tightening by the US Federal Reserve within the year. They also expressed heightened caution ahead of the US central bank’s policy meeting next week as well as the Philippines’ balance of payments which incurred a wider deficit last month.
The local unit ended at P50.94 yesterday, plunging 17 centavos from its P50.77 finish on Tuesday.
Wednesday’s close was another fresh low for the peso after its worst finish in close to 11 years or since it ended at P50.945 per dollar on Aug. 29, 2006.
The peso opened the session at P50.75 versus the foreign currency, closer to its strongest level for the day at P50.735 per dollar, while its intraday trough was seen dropping to as low as P50.95 against the greenback, nearer its closing level for the day.
Dollars traded stood at $523 million on Wednesday, down from the $653 million that changed hands on Tuesday.
One trader attributed the peso’s slump versus the greenback to offshore factors, primarily involving the Fed’s interest rate hike decision next week as well as before the year ends.
“The peso depreciated further today amid persistent bets of another US rate hike this year and as investors remain caution ahead of the US interest rate decision next week,” the trader said by e-mail on Wednesday.
Reuters reported global investors are betting on a slower tightening from the Fed, after softer US inflation trimmed some of the policy makers’ views regarding the need to aggressively hike rates.
Readings from the US Labor Department bared its Consumer Price Index (CPI) remained unchanged in June versus the 0.1% drop in May after the price of gasoline and mobile phone services continued to decline.
Year on year, US inflation rose 1.6% by end-June, the smallest gain since October 2016 after it increasing 1.9% in May — and has been slipping since February when prices hit 2.7%, which was the biggest gain in five years.
Meanwhile, the US central bank will hold its two- day Federal Open Market Committee (FOMC) meeting on July 25 to 26.
However, a trader mentioned that the local currency continued to slide against the greenback amid bets of stronger US economic data for the week.
“In part, the peso also weakened likely because of expectations of more positive US data this week,” the trader noted.
In contrast, another trader said the peso continued to trend lower against the dollar after the country’s BoP position — which measures the country’s transactions with the rest of the world — continued to report a deficit. A deficit meant more funds fled the economy against what came in, while a surplus showed that more money entered the Philippines.
“Why does the dollar- peso continue moving upwards? Some factors like the recently released balance of payments, which was a deficit, that should cause a pressure on the peso to weaken versus the dollar,” the trader said.
Data from the Bangko Sentral ng Pilipinas (BSP) bared the country’s external payments position declined in June to hit its widest deficit in seven months due to a pickup in imports and stronger corporate appetite for dollars.
The country’s BoP position widened to a $ 569- million deficit last month coming from a $ 59- million shortfall in May and reversing a $418million surplus posted in June 2016. The monthly figure is also the largest since a $1.671-billion deficit hit a peak in November last year, and brought the first-half tally to a $706-million deficit. This compares to a $634-million surplus during the first six months of 2016.
Meanwhile, asked if President Rodrigo R. Duterte’s plan of extending martial law in Mindanao until this year contributed to a weaker peso, the trader said: “Probably. There’s also concerns regarding that, the uneasiness in business community and some people are not comfortable with it.”
On Tuesday, Mr. Duterte said he wants to extend military rule in Mindanao until Dec. 31 of this year to defeat the pro Islamic State ( SI)- inspired Maute terrorist group.
“So there should be pressure on the peso because of this martial law as well,” the trader said.
On May 23, the Philippine President declared martial law through Proclamation 216 after clashes between government forces and the Maute group broke out in Marawi City during that day — which triggered the biggest internal security crisis in the country since the 2013 siege of Zamboanga City by the Moro National Liberation Front.
“So for now, it seems as though one: in this period, there was mid-month demand for the dollars and oil companies are mostly buying the dollar. At the same time, all these things — the martial law, continuation of a BoP deficit trend will continue to weaken the peso,” the trader said. “It’s only a matter of time the peso will hit P51to-the dollar.”
For Thursday, one trader said the exchange rate could settle within P50.87 to P51 while the other trader said the peso could trade between P50.80 and P51 versus the greenback.
“The peso might appreciate due to profit taking ahead of the likely hawkish ECB ( European Central Bank) monetary policy meeting,” one trader noted. —