Peso to weaken on positive US jobs data

Posted on July 10, 2017

THE PESO is set to weaken further this week versus the dollar after the US created higher-than-expected jobs, based on data released last Friday.

The local currency recovered against the greenback on Friday following series of declines as it closed at P50.58, nine centavos stronger than its P50.67-per-dollar finish on Thursday, as investors reduced dollar positions prior to the release of US non-farm payrolls data.

Week-on-week, however, the peso slid from its P50.47-per-dollar close last June 30.

Traders said the local pair’s direction for this week will hinge on the US non-farm payrolls data released on Friday.

“The dollar in general will probably take its cue from that. So if we see a higher figure, I guess dollar-peso will track that,” a trader said in a phone interview on Friday ahead of the data.

US job growth surged more than expected in June and employers increased hours for workers, signs of labor market strength that could keep the Federal Reserve on course for a third interest rate hike this year despite sluggish wage gains.

Non-farm payrolls jumped by 222,000 jobs last month, driven by hefty gains in healthcare, government, restaurants and professional and business services sectors, the US Labor Department said on Friday.

That was the second biggest payrolls increase this year and beat economists’ expectations for a 179,000 rise. The economy also created 47,000 more jobs in April and May than previously reported. While the unemployment rate rose to 4.4% from a 16-year low of 4.3% in May, that was because more people were looking for work, a sign of confidence in the labor market.

The Federal Reserve raised its benchmark overnight interest rate in June for the second time this year.

“I think dollar-peso will trade higher from today, and we suspect the BSP (Bangko Sentral ng Pilipinas) in the market, or will be supplying dollars or liquidity in the market to smoothen out the volatility,” the trader said.

Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, however said that the dollar’s strength may be offset by weaker-than-expected increases in US inflation data, but not enough to change the Fed’s hawkish tone.

“The dollar’s gain might be trimmed, as investors might take profit amid likely softer increases in US producer and consumer prices. Weak US inflation could temper the hawkish signals from US policy makers, but it might unlikely change expectations of another US interest rate hike this year. Previously, the US central bank noted the slowdown in inflation, but hinted that it might start reducing its balance sheet this year,” Mr. Dumalagan said in an e-mail over the weekend.

“The factors that could reverse the dollar’s projected upward bias include unexpected dovish remarks from US Federal Reserve officials and a significant plunge in US producer prices. Any developments about the Duterte administration’s infrastructure and tax reform program might also temper the dollar’s anticipated upward trajectory,” he added.

The traders expect the local pair to trade within P50.50-P50.70, while Mr. Dumalagan forecasts a P50.40-P50.80 range. -- Elijah Joseph C. Tubayan with Reuters