Peso down on easing US-China tensions after Trump’s ZTE deal

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THE PESO weakened yesterday over indications of easing US and China tensions after US President Donald J. Trump’s pronouncements on extending assistance to Chinese telecommunications giant ZTE Corp. amid a brewing trade war between the two countries.

The local unit closed at P52.29 against the greenback on Tuesday, shedding 10 centavos from the P52.19 finish on Friday.

The local currency immediately slid to P52.36 as the market opened, then depreciated further to as low as P52.50 per dollar. The peso’s peak for the day was P52.25 versus the dollar.

Dollars traded grew to $1.35 billion from the $1.13 billion recorded on Friday following the long weekend.

“The peso dipped strongly today as US and China trade relations eased over the long weekend after Pres. Donald Trump intended to extend assistance to Chinese telecom ZTE…,” a trader said in an e-mail on Tuesday.

The trader said market players took profits when the local currency touched the P52.5 per dollar resistance that tempered the overall depreciation.

ING Bank N.V. Manila senior economist Jose Mario I. Cuyegkeng meanwhile said the peso’s weakness may be linked to the US’ withdrawal from the Iran nuclear deal that brought up world oil prices.

“Higher crude oil prices not only due to political risks surrounding the withdrawal of the US from the Iran nuclear deal but also recent Israeli attacks on Iran installations in Syria. Net oil importing economies like the Philippines are affected and partly seen in PHP.”

He added that the peso dropped as traders are not seeing another interest rate hike from the Bangko Sentral ng Pilipinas (BSP).

“Market perceives that the follow through BSP monetary policy tightening is unlikely soon after the Thursday BSP policy rate hike. The perception is that interest rate differentials could narrow as US monetary authorities raise policy rates as early as the June meeting.”

The Monetary Board on May 10 raised borrowing costs by 25 basis points to stand at 3.75% for the overnight lending rate, 3.25% for the overnight reverse repurchase rate, and 2.75% for the overnight deposit rate.

Moreover the first trader said the peso may recover today ahead of softer-than-expected US retail sales data for April.

The trader added there is “possible further profit taking in the recent strength of the dollar. Rates are expected to trade between P52.10 and P52.40.”

Asian currencies weakened on Tuesday with the South Korean won and Indonesian rupiah falling the most, as easing trade tensions helped shore up the dollar and push up US bond yields.— E.J.C. Tubayan with Reuters