Peso sinks to fresh 10-year low vs dollar

THE PESO opened the week lower against the dollar, plunging to its weakest level in over a decade, amid market appetite for the foreign currency.

The local unit finished at P50.70 on Monday, down five centavos from its P50.65-per-dollar finish on Friday.

Yesterday’s close was also the peso’s worst finish in more than 10 years or since it closed at P50.735 per dollar last Sept. 1, 2006.

The peso opened the session at its intraday high of P50.55 per dollar. Its closing rate was its low for the day.

One trader said the peso was still in consolidation after low liquidity was seen in yesterday’s session.

“The peso opened lower this morning, practically in lined with dollar weakness on Friday’s session but overall it’s still pretty much in consolidation due to the low volume seen yesterday,” the trader said by phone on Monday.

Dollars traded stood at $255.95 million yesterday, down from the $379.45 million that changed hands on Friday.

“There was also a slight bounce in the dollar that contributed to the dollar move,” the trader said.

Meanwhile, another trader said strong appetite from buyers abroad and at home was present towards the afternoon session.

“Initially, the market traded lower due to mixed data on CPI (consumer price index) in the US last Friday which the market interpreted as negative for the dollar, but then this afternoon there was demand from local and foreign buyers and higher non-deliverable forward levels,” the trader said in a phone interview on Monday.

US consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand, the government reported on Friday.

For today, one trader said the exchange rate could settle within P50.55 to P50.80 while the other trader said the peso could trade between P50.60 to P50.80 versus the greenback.

ASIAN UNITS RISE
Most Asian currencies edged higher on increased risk appetite as investors tempered their expectations for a third interest rate hike by the Federal Reserve this year following weak US economic data for June.

The dollar index was up just 0.05% at 95.195, not far away from its 10-month trough hit on Friday.

“While odds of balance sheet reduction in September seems to have increased, chances of another hike by year end seems to have come down, because of the lower than expected inflation. This is positive for Emerging Asian (EM) currencies,” said Sim Moh Siong, foreign exchange strategist at Bank of Singapore.

“I think for now, the theme is hunt for yield in the EM markets”.

Fed funds futures imply around a 50-50 chance of another hike by December, and have less than two moves priced in for all of next year. Fed policy makers have pencilled in one more rise this year and a further four in 2018.

China’s economic data showing second-quarter gross domestic product grew at a faster pace than expected pace also lifted Asian currencies, even as analysts tip momentum to cool over the rest of the year as policy makers seek to reduce financial risks.

China’s yuan inched up after the central bank lifted its official guidance for the currency’s midpoint to an 8-1/2-month high.

RISK-ON MOOD
Trade data from Singapore was also solid, with exports growing at double the expected pace last month, and helping the local dollar edge up to its highest since October last year.

In Indonesia, data showed exports and imports contracted in June on a yearly basis for the first time in nine months, though the country still posted a trade surplus.

The Indonesian rupiah was up nearly 0.2% against the dollar on the day.

The broader risk-on mood also pushed the South Korean won up nearly half a percent. Analysts expect robust exports data for the first 20 days of July, due out on Thursday.

Thomson Reuters data showed the volatilities of most of the Asian currencies have declined recently. The 3-month volatility of the Indonesian rupiah stood at 5.17% on Monday, compared to 9% at the start of the year, while the Indian rupee’s volatility stood at 4.7%, much lower than 5.75% at the start of the year.

Analysts said the scenario is perfect for carry trades.

“Generally the high yielding ones like the Indian rupee and Indonesian rupiah will be preferred for carry trades,” said Bank of Singapore’s Sim.

“They have seen a bit of a wobble over the last few weeks. Some of that wobble may start to settle down, given the growth is resilient globally and the central banks are quite cautious in tightening going forward.” — JMDS with Reuters