Peso may stay at P55:$1 level

THE PESO may remain at the P55-per-dollar level this week following the release of US jobs data that could affect the US Federal Reserve’s policy path.

The local unit closed at a one-month low of P55.74 versus the dollar on Friday, weakening by 22 centavos from Thursday’s P55.52 finish, data from the Bankers Association of the Philippines’ website showed.

This was the peso’s weakest close since its P55.77-per-dollar finish on June 23.

Week on week, the peso dropped by 83 centavos from its P54.91 close on July 28.

The local unit opened Friday’s session at P55.60 per dollar. Its intraday best was at P55.55, while its weakest showing was at P55.777 against the greenback.

Dollars traded went down to $1.14 billion on Friday from the $1.28 billion recorded on Thursday.

The peso declined further on Friday amid elevated global crude oil prices after Saudi Arabia extended its oil production cut of one million barrels per day for another month and hinted at further reductions, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Saudi Arabia will extend a voluntary oil output cut of one million barrels per day for another month to include September, it said on Thursday, adding it could be extended beyond that or deepened, Reuters reported.

The kingdom’s production for September will be around nine million barrels per day, the state news agency SPA cited an official source at the energy ministry as saying.

On Friday, Brent crude futures rose by $1.10 or 1.3% to settle at $86.24 a barrel, while the US West Texas Intermediate crude gained $1.27 or 1.6% to close at $82.82 a barrel. Both benchmarks hit their highest levels since mid-April on Friday.

“The peso [was] also weaker due to the tail-end of the seasonal increase in OFW (overseas Filipino workers) remittances for tuition and other school opening-related payments,” Mr. Ricafort added.

For this week, he said the peso may weaken further after the release of US labor data for July, which may affect the Fed’s future policy decisions.

The US economy added fewer jobs than expected in July, but solid wage gains and a decline in the unemployment rate back to 3.5% pointed to continued tightness in labor market conditions, Reuters reported.

The Labor department’s employment report on Friday also showed job gains in May and June were revised lower, potentially suggesting demand for labor was slowing in the wake of the Fed’s hefty interest rate hikes.

But with 1.6 job openings for every unemployed person in June, the moderation in hiring may also be the result of companies failing to find workers.

The mixed report did not change growing perceptions among economists that the Fed could engineer a “soft landing” for the economy, though much would depend on the direction of inflation after annual increases in prices slowed sharply in June.

Nonfarm payrolls increased by 187,000 jobs last month, the Labor department’s survey of establishments showed. Data for June was revised lower to show 185,000 jobs added instead of the previously reported 209,000. The job growth in June was the slowest since December 2020.

The economy created 49,000 fewer jobs in May and June than previously reported. Economists polled by Reuters had forecast a gain of 200,000 jobs. Payrolls growth has averaged 218,000 jobs per month over the past three months, a sharp slowdown from the average of 434,000 during the same period last year.

The Fed raised borrowing costs by 25 basis points (bps) in its July 25-26 meeting, bringing its target interest rate to a range between 5.25% and 5.5%.

The US central bank has hiked rates by a cumulative 525 bps since it began its tightening cycle in March last year.

The Federal Open Market Committee will next meet on Sept. 19-20 to review policy.

Mr. Ricafort expects the peso to trade between P55.45 and P55.95 per dollar this week. — A.M.C. Sy with Reuters