Peso likely to strengthen on US data, tax reform
THE PESO is expected to strengthen against the dollar this week as the greenback will likely be dragged by weak US economic data and recurrent political noise.
On Friday, the local currency moved sideways, losing five centavos to close at P50.95.
The week’s finish was better than the P51.245-per-dollar close recorded last Nov. 10.
Last week, the peso rallied to return to the P50-per-dollar mark, driven by the stronger-than-expected Philippine gross domestic product growth, which registered at 6.9%.
Traders interviewed over the weekend said the local unit might continue its ascent in the coming days as political developments in the US take toll on the dollar.
“In the first two days of the week, the dollar might decline further, as investors might stay away from the greenback due to negative concerns about the US tax reform and the alleged involvement of Russia in the US election,” Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said in an e-mail over the weekend.
Mr. Dumalagan noted that while the issue on Russian interference in the US election will not have any significant effects in the Federal Reserve’s likely interest rate hike before yearend, the recurring noise about the possible delay to the tax reform which would slash corporate taxes “could potentially reduce the pace of US interest rate normalization by affecting inflation expectations, which currently remain subdued.”
Meanwhile, a trader said over the phone that the US data on durable goods orders might also drag the weak greenback.
However, Mr. Dumalagan added that the peso might drop starting Wednesday as market players expect US data to come out strong, tempering the effects of weak durable goods data.
Another trader said investors may also wait for hawkish statements from the Federal Reserve’s monetary policy meeting scheduled on Thursday.
Traders are expecting the peso to trade between P50.90 and P51.20, while Mr. Dumalagan gave a wider range of P50.80 to P51.20, noting that positive news about the US tax cuts, as well as better-than-expected data on durable goods, might reverse the weak dollar. — Karl Angelo N. Vidal
