Peso may stay at P58 level on remittance inflows for holidays

THE PESO may continue trading within the P58 level against the dollar this week, with investors expected to monitor the release of more US economic data for leads before the holiday break.

On Friday, the local unit fell by 14.5 centavos to close at P58.70 versus the greenback from its P58.555 finish on Thursday, Bankers Association of the Philippines data showed.

Meanwhile, week on week, it climbed by 36.5 centavos from its P59.065 close on Dec. 12.

The peso weakened on Friday after the Bank of Japan’s (BoJ) policy decision led to the dollar’s rise, a trader said in a phone interview.

In the Asian session on Friday, the yen weakened in volatile trade after the BoJ delivered a widely expected rate hike, while its governor offered few hints on the timing of future increases even as he left the door open to further tightening, Reuters reported.

The yen initially fell against the dollar after the BoJ raised its policy rate to 0.75% from 0.5% in a move that had been well telegraphed by policymakers, prompting traders to sell the currency on the fact.

Losses in the Japanese currency extended following BoJ Governor Kazuo Ueda’s post-meeting press conference, where he remained vague on the exact timing and pace of future interest rate hikes. It was last 0.6% weaker at 156.53 per dollar. The euro rose to a record high of 183.25 yen. Sterling gained 0.52% to 209.16 yen.

In Friday’s statement, the BoJ maintained its view that underlying inflation will converge around its 2% target in the latter half of its three-year projection period through fiscal 2027.

But hawkish board members Hajime Takata and Naoki Tamura dissented to the view. Mr. Takata said underlying inflation has already achieved the target, while Mr. Tamura said it would do so as soon as the middle of the three-year projection period.

The BoJ again noted real rates were at “significantly” low levels even after the hike, and pledged to continue tightening should the economy and inflation pan out as forecast.

Overnight, the dollar had briefly weakened following a sharp and unexpected fall in US inflation, but investors were not sure how far to trust the data since collection was interrupted by the US government shutdown, and the move soon retraced.

At the close of the US session on Friday, the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.27% to 98.70. The euro fell 0.08% to $1.1711.

For this week, the trader said the peso may continue to trade at the P58 level, with remittance inflows expected to provide some strength amid the upcoming trading break. Philippine financial markets are closed on Dec. 24-25 for the Christmas holidays.

US data released over the weekend could also provide support to the local unit, the trader added.

“Offsetting positive factors for the peso recently largely due to the seasonal increase or peak in OFW (overseas Filipino workers) remittances and conversion to pesos especially within a week before Christmas to finance holiday spending rush,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

In October, cash remittances climbed by 3% year on year to $3.171 billion from $3.079 billion in the same month last year, central bank data showed. This was the highest monthly remittance level in three months or since the $3.179 billion logged in July.

Analysts have said that remittances will continue to increase in the succeeding months and are highly likely to peak by year-end.

Mr. Ricafort said the peso might trade between P58.30 and 58.80 against the dollar this week, while the trader expects it to move between P58.50 and P58.90 versus the greenback. — Katherine K. Chan with Reuters