THE PESO is likely to weaken this week as markets continue to track heightened tensions between the US and China as well as the upward correction in oil prices.

The local unit finished trading at P50.70 against the dollar, shedding nine centavos from its P50.61 close on Thursday, according to data from the Bankers Association of the Philippines.

However, the currency gained six centavos week on week compared to its P50.76-per-dollar close on May 15.

The weaker peso came as the market tracked escalating tensions between US and China, according to UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion.

“Investors seemed to stay on the sidelines as the US-China trade deal tensions have continuously risen in the past days,” Mr. Asuncion said in a text message.

Republican and Democratic US senators said on Thursday they would introduce legislation to impose sanctions on Chinese officials for violating Hong Kong’s independence, after Beijing moved to impose a new security law on the former British colony.

The bill, to be introduced by Republican Senator Pat Toomey and Democrat Chris Van Hollen, would also impose secondary sanctions on banks that do business with entities found to violate the law guaranteeing Hong Kong’s autonomy.

Apart from heated US-China relations, the correction in oil prices also took its toll on the peso, according to Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC).

“Peso was also weaker after global crude oil prices reached new two-month highs,” Mr. Ricafort said in a text message.

Reuters said Brent crude was up by 14 cents or 0.4% to $36.20 a barrel by 0040 GMT on Friday, after gaining nearly 1% on Thursday. The contract is heading for a more than 10% climb for the week.

The price of West Texas Intermediate crude was likewise up five cents or 0.2% to $33.97 a barrel, having gained more than 1% in the last session. The US benchmark is on track to seal a weekly increase of around 15%.

In the coming week, peso-dollar trading will be affected by market sentiment on key US and local data, according to UnionBank’s Mr. Asuncion.

“Peso is expected to move sideways as the markets wait for more major economic data moves this week, including the local budget balance as well as the US consumer confidence,” he said.

The US consumer confidence index dropped to its near six-year low reading of 86.9, no thanks to the pandemic. This is the lowest reading since June 2014 and also lower than the 118.8 seen in March.

Meanwhile, the Bureau of the Treasury will report the April budget balance data on May 26.

For RCBC’s Mr. Ricafort, the market’s sentiment on heightened tensions between US and China and the movement of oil prices is expected to guide currency trading this week.

“Major catalysts for the peso also include developments related to further reopening of economies and any developments on possible cure or vaccine on COVID-19,” he added.

Metro Manila Council Chairman and Parañaque Mayor Edwin L. Olivarez earlier said he will endorse the placement of Metro Manila under general community quarantine by June 1, saying the impact of the pandemic on the National Capital Region is “horrible and horrifying.”

For this week, Mr. Ricafort gave a forecast range of P50.50 to P50.90 while Mr. Asuncion bet that the local unit will trade within the P50.60 to P50.90 levels. — L.W.T. Noble with Reuters