THE PESO dropped to a near 12-year low on Monday as the dollar strengthened on the back of easing trade tensions between China and the United States.
The local currency ended yesterday’s session at P52.465 against the greenback, 13.5 centavos weaker than its P52.33-per-dollar finish on Friday.
This was the peso’s weakest finish in nearly 12 years or since July 19, 2006, when the peso closed at P52.745.
The peso traded weaker the whole day, opening the session at P52.36. It posted a P52.485-per-dollar low, while its best showing stood at P52.345.
Dollars traded rose to $705.25 million from the $690.8 million that switched hands the previous session.
Traders interviewed on Monday said the peso plunged as the dollar was boosted by easing tensions between the world’s largest economies.
“Weakness of the peso may have come from the greenback’s rise due to the trade war ease between the US and China,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said in a text message.
Another trader shared the same sentiment, adding that the dollar also strengthened ahead of the “likely hawkish minutes of the last May policy meeting of the Federal Open Market Committee.”
The US Federal Reserve held interest rates steady during its May meeting, expressing confidence that the uptick in inflation nearing its 2% target would be sustained.
Meanwhile, Mr. Asuncion said the balance of payments (BoP) data was “possibly” factored in by investors.
Data released by the Bangko Sentral ng Pilipinas on Friday showed the country’s overall BoP position posted a deficit of $270 million in April, a reversal of the $917-million surplus logged the previous month.
“[It’s possible], but the bigger story today is the trade war on hold,” Mr. Asuncion added.
For today, Mr. Asuncion sees the peso moving between P52.20 and P52.60 versus the dollar, while the trader gave a slightly narrower P52.30-P52.60 range.
“The local currency might further depreciate as various Fed officials will likely to send hawkish signals regarding the US economy which would be favorable to the greenback,” the trader noted.
Other Asian currencies also weakened against the dollar on Monday, which touched a new 2018 peak as signs of easing trade tensions between the United States and China supported the greenback against its peers.
US Treasury Secretary Steven Mnuchin and President Donald J. Trump’s top economic adviser, Larry Kudlow, said an agreement reached by Chinese and American negotiators on Saturday sets up a framework for addressing trade imbalances in the future.
Mr. Mnuchin’s reference to trade tensions between the world’s two largest economies being “on hold” supported wider risk sentiment as well as the dollar.
“The latest statement on the China-US trade suggests both parties are happy to avoid the dreaded tit-for-tat escalation while working towards a more market-friendly bilateral trade agreement,” said Stephen Innes, head of trading in Asia Pacific for Oanda.
However, the easing trade tensions between US and China, while welcome, is unlikely to eclipse the other factors weighing on emerging market currencies, DBS said in a note. — K.A.N. Vidal with Reuters