Peso nears this year’s low after Bank of Japan’s policy decision

THE PESO extended its weakness against the dollar yesterday, hitting a fresh eight-month low, ahead of the US Federal Reserve’s policy meeting and after the Bank of Japan (BoJ) kept its negative policy rates unchanged.

The local unit lost 4.5 centavos to close at P47.89 versus the greenback at the end of Wednesday’s trading, sharply weaker than its previous finish of P47.845 per dollar.

This is the peso’s weakest close since it finished at P47.995 a dollar last Jan. 26.

The peso opened trading stronger at P47.74 against the dollar, with its best intraday level logged at P47.68 against the greenback.

The local currency’s weakest performance was at P47.92 per dollar.

Dollars traded at the foreign exchange market posted an increase at $ 701.5 million from $395.4 million during Tuesday’s session, data from the Philippine Dealing System showed.

“The peso moved sideways [ yesterday] amid softer- thanexpected US housing data and dovish moves from the Bank of Japan,” a trader said.

Amid disrupted construction activity caused by the likely bad weather in the South, US housing data in August came out yesterday weaker than expected.

Meanwhile, the BoJ at the close of its policy meeting yesterday, said it has shifted its focus from its monetary stimulus program to managing Japan’s yield curve. The central bank also left its interest rates unchanged at negative 0.1%.

“The peso, however, was unable to sustain its early strength, as investors were cautious ahead of the interest rate decision of the US Federal Reserve,” the trader said.

FED IN FOCUS

The Fed’s policy-making body, Federal Open Market Committee (FOMC) will end its own twoday review early today. Investors expect the Fed to keep interest rates unchanged in its meeting, but market players are cautious for any hints on whether the US central bank will hike borrowing costs in December.

For today’s session, a second trader said the peso’s movement “depends on the results of the FOMC meeting.”

“If the Fed decides to increase rates, then we might see the pair trading at the P48 level or even higher, reaching the P48.10 cap,” the trader added.

“But assuming that the Fed won’t hike rates, then that’s going to be bad for the dollar, then we will assume that the peso will be off the highs further probably moving at the P47.50 to P47.60 levels.”

Both traders expect the peso to move within the P47.60 to P48.00 range today.

“The peso could appreciate [ today] due to expectations of steady US policy rates this month,” the first trader said.

“The peso’s strength, however, might be limited given that the US Federal Reserve is still generally on track to increasing rates in December this year,” the first trader added.