THE PESO opened the week lower versus the dollar following mixed US data and amid heightened caution ahead of the release of the Federal Reserve’s June meeting minutes this week.

The local currency closed at P50.545 against the greenback on Monday, down by seven-and-a-half centavos from its P50.47-per-dollar finish on Friday.

The peso opened the session at its intraday peak of P50.45 per dollar. Its worst showing for the day reached P50.57 versus the foreign currency.

Dollars traded totalled $395 million on Monday, sliding from the $760.9 million that changed hands the previous session.

One trader attributed the dollar’s gain versus the peso to mixed US economic reports, namely data on personal spending, personal consumption expenditures (PCE) inflation, and consumer sentiment.

“The peso opened stronger today likely due to last Friday’s downbeat US data…,” the trader said by e-mail on Monday.

Latest data from the US Commerce Department bared consumer spending — which accounts for more than two-thirds of US economic activity — increased modestly in May to 0.1%, which hiked US government debt and US stock prices after the data was released.

Meanwhile, the PCE price index cooled to 0.1% in May from April anchored by a decline in prices of consumer goods and energy. University of Michigan’s consumer sentiment index also slumped to 95.1 in June, its lowest reading since November.

“The peso’s initial gain, however, was erased perhaps because of [St. Louis Federal Reserve chief James] Bullard’s hawkish statements. There was also some caution in the market ahead of the FOMC (Federal Open Market Committee) minutes,” Landbank’s Mr. Dumalagan said.

The minutes of the Fed’s June meeting will be released on Thursday.

Meanwhile, another trader said the peso’s decline versus the dollar was due to a correction on the part of the greenback after it rose against a basket of currencies.

For Tuesday, one trader said the exchange rate may settle within the P50.30 to P50.60 range, while the other trader said the peso may play within P50.45 to P50.65 to the dollar.

“The peso might depreciate amid expectations of upbeat US manufacturing data,” one trader said.

PESO SLUMP TO CONTINUE
For its part, analysts at BMI Research said that they see the peso continue slumping against the dollar, but they remain positive on the local currency in terms of total returns. • Janine Marie D. Soliman

The Fitch Group unit said in a June 30 report that it sees the peso at P50.50 per dollar by yearend, slightly up from its previous projection of P50 to the dollar.

It also said the local currency will average at P50.75 versus the greenback by 2018, higher from its previous estimate of P49.75 per dollar for next year.

“While there is scope for further spot weakness over the coming months given rising real rates in developed markets, we do not expect this weakness to be excessive,” BMI said.

BMI Research said it sees zero rate hikes from the Fed before the year ends, going against market expectations of higher chances of one more monetary tightening by end-2017.

“Importantly, we are more dovish than market expectations with regards to US interest rates, forecasting no more rate hikes for the rest of the year,” it said.

It also noted that it expects the Bangko Sentral ng Pilipinas to lift borrowing costs before the year ends, noting: “which should see real interest rate spread move in favor of the PHP.”

Meanwhile, analysts at BMI said that in the long term or in the next six to two years, they “are adopting a relatively neutral view on the PHP given that upside and downside forces are more or less balanced, but continue to expect the currency to outperform in total return terms.”

According to the Fitch Group unit, persisting political noise at home, possible policy tightening from the US central bank, as well as political uncertainties in the US could dampen its outlook for the local currency’s performance against the dollar.

“Firstly, the political outlook in Philippines could deteriorate more rapidly than we expected given the volatile nature of President [Rodrigo R.] Duterte and the deep division between the President and Vice President [Maria Leonor “Leni” G. Robredo’s] camp in both the executive and legislative branches,” BMI said.

“Secondly, should the US Fed hike interest rates faster than we expect, this could see hot money outflows intensify which would be negative for the PHP,” it added.

“Lastly, the US is one of the Philippines’ largest sources of FDI (foreign direct investments) and trade partner, and if [Donald J.] Trump[‘s] administration moves ahead with more protectionist policies, this would negatively affect the Philippines’ economy and its external position,” BMI noted. — Janine Marie D. Soliman

The peso dropped due to cautiousness ahead of the Federal Reserve minutes. — REUTERS

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