Home Banking & Finance Peso seen to strengthen on US-China trade talks
Peso seen to strengthen on US-China trade talks
THE PESO is seen to strengthen further against the dollar this week following positive developments in the trade negotiations between the United States and China and amid expectations of a slowdown in domestic inflation.
On Friday, the local unit closed at P51.24 against the dollar from the P51.27 finish on Thursday, ahead of an expected cut in policy rates by the US Federal Reserve and amid positive sentiment generated by the G20 meeting.
Week on week, the peso also strengthened from its P51.57-per-dollar finish last June 21.
“With the positive talks between Trump and Xi, the peso is expected to be strengthening this week,” Ruben Carlo O. Asuncion, UnionBank of the Philippines, Inc. chief economist, said in a text message yesterday.
On the sidelines of the G20 summit in Osaka, Japan on Saturday, US President Donald J. Trump and Chinese President Xi Jinping agreed to resume trade talks after weeks of hurling tariffs against each other imports.
Washington said it will cancel a planned 25% tariff on $300 billion worth of Chinese imports and will ease restrictions on American companies to sell to Chinese telecom giant Huawei Technologies.
Mr. Asuncion said the resumption of trade talks removes the uncertainty about a potential trade deal between the world’s two largest economies.
“Investors’ confidence may rise moving forward instead of just waiting on the sidelines,” he added. “More clarity hopefully comes out as the days go by on how trade talks will further proceed.”
Meanwhile, Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort said the peso may continue to strengthen this week “amid market expectations of further easing of inflation.”
Market watchers expect inflation to have slowed in June. A BusinessWorld poll of 12 economists yielded a median of 2.9% estimate, which if realized would be slower than May’s inflation rate of 3.2%.
The Bangko Sentral ng Pilipinas Department of Economic Research said June headline inflation likely within 2.2-3% on lower rice and domestic oil prices, downward adjustment in electricity rates and the peso’s appreciation.
Inflation data will be reported on July 5.
“Bets of weak inflation in June 2019 might temper the dollar’s strength by confirming views of further monetary easing from the BSP this year,” a market analyst said in an e-mail.
The analyst added that the greenback is seen to depreciate in the first four days of the week on the back of a string of likely weak US economic reports on inflation, manufacturing and non-manufacturing.
“Further bolstering such dovish bet is the downward revision in the growth forecast of the Federal Reserve Bank of Atlanta. Based on recent data, the US economy is now expected to grow by 1.5% in the second quarter from a previous estimate of 1.9% amid a slowdown in household consumption and private domestic investment,” the market watcher added.
For this week, UnionBank’s Mr. Asuncion expects the local currency to trade between P51.10-P51.30, while RCBC’s Mr. Ricafort gave a P51-P51.50 range.
The market analyst, on the other hand, expects a P51-P51.60 range for this week. — Karl Angelo N. Vidal