Peso seen weakening vs dollar

THE PESO could weaken and go back to the P53-per-dollar level this week as market players expect strong economic data in the United States, although eyes are also on the local central bank’s rate decision due on Thursday.

The local unit closed at P52.96 on Friday, 39 centavos weaker than the P52.57 finish the previous day which was a five-month high. Week on week, the local unit appreciated coming from a P53.535-per-dollar rate logged last Oct. 31 but ended a five-day rally.

Traders sought for comment said the peso could depreciate further in response to a stronger dollar.

A bond trader said the currency will likely see a “correction” following the sudden and substantial drop, and in the absence of big-ticket inflows logged early last week.

She added that players will be watching out for the interest rate decision of the Bangko Sentral ng Pilipinas (BSP) during their seventh policy meeting later this week.

Eleven analysts tapped for a BusinessWorld poll were split, with six saying that policy makers will hold fire on interest rates this week, while five expect a 25-basis-point (bp) tightening move.

The central bank has raised rates in four consecutive meetings since May worth a total of 150 bps. The key policy rate now stands at 4.5%, the highest since 2009.

Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines, pointed out that external developments will also shape peso-dollar trading this week.

“The dollar is expected to appreciate this week, supported by likely upbeat US economic data and hawkish comments from US Federal Reserve officials. The greenback’s recovery might be capped by similar hawkish moves or hints from the BSP,” Mr. Dumalagan said.

Due this week are US data on consumer sentiment and inflation, as well as third-quarter economic growth data from Japan.

During their policy meeting last week, the Fed affirmed that the US economy remains on solid footing. Investors took it as a hawkish stance which bolstered the chances for another 25bp rate hike before the year ends.

The first trader expects the peso to trade within P52.80 to P53.50 this week, while Mr. Dumalagan gave a P52.70-P53.30 range.