Peso may weaken against dollar due to strong US economic data

THE PESO is seen to weaken against the dollar today following likely strong US reports, although this might be tempered by expectations of a rate hike from the local central bank.

On Monday, the peso rose to a near three-month high against the greenback, closing the session at P51.74 following the upgraded credit outlook for the Philippines.

Debt watcher S&P Global Ratings upgraded its credit outlook for the Philippines to “positive” from “stable” last week, hinting on better chances of a rating upgrade.

The Philippines currently holds a “BBB” rating from S&P, a notch above minimum investment grade. The rating was on a “stable” outlook since April 2015 prior to this revision.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (LANDBANK), said the local currency might weaken today following likely upbeat data in the US.

“When trading resumes on Wednesday, the dollar is expected to appreciate, as Philippine investors process all upbeat US economic reports released during the one-day hiatus,” Mr. Dumalagan said in an e-mail on Sunday.

“The appreciation of the dollar due to likely strong US economic data on manufacturing, PCE (personal consumption expenditure) inflation, personal spending, and personal income is expected to persist until Thursday, during which the US Federal Reserve is seen to affirm its hawkish stance on monetary policy.”

However, Mr. Dumalagan said on Monday that the dollar’s upward potential might be capped by continued speculations of a possible rate hike from the Bangko Sentral ng Pilipinas (BSP) following increasingly hawkish hints.

“The market is expecting a hike in the next meeting. We’re seeing the offshore market trying to sell dollar-peso right now,” a trader said on Monday.

By Friday, LANDBANK’s market economist said the peso “might recover” on the back of “upbeat” inflation reports from the Philippines as well as in the Eurozone.

“On Friday or perhaps late Thursday, the dollar is expected to shed some of its initial strength, as likely upbeat inflation reports from the Philippines and Eurozone could support views that the BSP and the ECB (European Central Bank) remain on track to hiking their policy rates this year.”

According to a BusinessWorld poll of 11 economists, headline inflation likely accelerated in April to a 4.5% median forecast, which if realized will be higher than the 4.3% booked in March using 2012 as the base year.

For today, Mr. Dumalagan expects the peso to move within the P51.70-P51.90 range.

Meanwhile, Michael L. Ricafort, economist at Rizal Commercial Banking Corp., sees the peso trading between P51.50 and P51.80.

“[Dollar-peso] exchange rate could range P51.50- P51.80 for the rest of the week, especially if the [Philippine Stock Exchange Index] continues to correct higher (investment gains in both the local stock market and the peso, especially from the point of view of foreign investors),” Mr. Ricafort said in a text message on Tuesday.

Yesterday, the dollar rose 0.1% against a basket of currencies to 91.964.

Markets are also focused on Friday’s April US non-farm payrolls report, which could provide further signs of strength in the world’s biggest economy. •