Peso rebounds ahead of Fed meeting’s close
THE PESO slightly climbed against the dollar on Wednesday as market players stayed on the sidelines ahead of the close of the US Federal Reserve’s monetary policy meeting and several key US economic data to be released within the week.
The peso closed at P49.95 versus the greenback yesterday, rebounding from its P49.99-per-dollar finish on Tuesday.
Dollars traded dropped to $ 528 million yesterday from the $707.55 million that changed hands the previous session.
“The peso appreciated slightly today as weak economic data in the past few days fuelled expectations of relatively dovish views from US policy makers during their meeting this week,” one trader said in an email on Wednesday.
The US central bank was set to end its two-day Federal Open Market Committee ( FOMC) meeting overnight.
Another trader said in a phone interview yesterday: “We saw fairly quiet trading as markets were waiting for the FOMC and US employment reports coming [ last night] and of course the US non-farm payrolls on Friday.”
Jose Mario I. Cuyegkeng, senior economist at ING Bank N.V. Manila, said in a May 2 research note e-mailed to reporters yesterday that the local currency “is likely to remain defensive this week,” with the peso playing within P50 to P50.45 per dollar for the whole month “under current conditions.”
“Corporate demand for USD together with unwinding of arbitrage
positions would keep demand for USD high,” he stated.
For today, both traders said the peso might play within P49.80 to P50.10 against the dollar.
“The peso might appreciate, as the US Federal Reserve might temper its tone about the pace of US interest rate normalization. The peso’s appreciation might be capped by likely stronger US nonmanufacturing data,” one trader noted.
ASIAN UNITS RISE
Most Asian currencies crept higher on Wednesday as strong manufacturing activity across the regional economies spurred risk appetite, but dollar losses were contained as investors expect the Fed could possibly signal a June rate increase later in the day.
Factories across much of Asia got off to a solid start in the second quarter, data released this week showed, buoyed by strong global demand, particularly for hi-tech gadgets which are leading a strong rally in electronics.
The Indonesian rupiah appreciated 0.1% against the dollar after manufacturing activity improved for the second straight month in April to hit a 10-month high.
The Indian rupee strengthened for a second day after a business survey showed that Indian manufacturing activity expanded for a fourth consecutive month in April, helped by stronger growth in new orders.
“The manufacturing PMI (purchasing managers’ index) prints from Asia was mostly upbeat and well in the expansion territory, suggesting that the manufacturing momentum still had room to extend in Q2,” OCBC Bank said in a note.
Among other currencies, the Taiwanese dollar was firmer for a second day, rising 0.1% to hit its highest since Sept. 2014.
Taiwan’s central bank said it sees volatility in the local currency against the US dollar as “unavoidable” and urged local companies to be vigilant about currency hedging.
Markets are also keeping a close eye on the Fed’s policy statement for hints on the US interest rate outlook.
The Fed is widely expected to keep interest rates unchanged at the end of its two-day policy meeting on Wednesday, but investors will look to see whether the central bank downplays the recent soft patch in the economy to leave the door open for a rate increase in June.
“The Federal Open Market Committee should provide some interest but will offer little in the way of a surprise with the market more focused on the language surrounding June,” Stephen Innes, senior trader at OANDA said.
The dollar last traded at 112.07 yen, not very far from Tuesday’s peak of 112.3 yen, its strongest level since March 21.
With Japanese markets closed for a public holiday on Wednesday and the rest of the week, market liquidity is likely to be thinner than usual.