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Peso may strengthen on US-China phase one deal

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THE PESO may strengthen against the dollar this week on the back of better risk appetite as the market waits for the ceremonial signing of the phase one trade deal between the United States and China.

The local unit closed at P50.66 per dollar on Friday, shedding less than a centavo from its P50.651 finish on Thursday, according to data from the website of the Bankers’ Association of the Philippines.

Meanwhile, it appreciated by 43 centavos from its P51.09 per dollar close on Jan. 3.

Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort attributed the sideways trading to the market’s anticipation of the phase one trade deal between the world’s two biggest economies.

“The financial markets are now anticipating the scheduled signing of the phase one deal amid continued easing of US-Iran tensions,” Mr. Ricafort said in a text message.

Reuters reported that White House officials have said on Friday that the Chinese translation for the key document which is set to be signed on Jan. 15 is yet to be completed.

Meanwhile, White House economic adviser Lawrence Alan Kudlow said in an interview with Fox Business Network that the document “is virtually complete” and all the signing is “all on schedule.”

A vital part of the deal is Beijing’s pledge to buy an additional $200 billion worth of products from the US for the next two years, a part of which is some $40 billion worth of agricultural products a year. In return, Washington will reduce tariffs imposed to nearly $160- billion Chinese goods by about a half.

UnionBank of the Philippines Inc. Chief Economist Ruben Carlo O. Asuncion also attributed the peso’s strength to subsiding tensions between Tehran and Washington.

“Risk appetites have seemingly improved across all markets as Iran and the US signalled their step back from increasing tensions in the Mid[dle] East,” Mr. Asuncion said in a text message.

Earlier, US President Donald J. Trump said he found it unnecessary for the US to hit back after Iran attacked their troops in Iraq as a retaliatory move for the death of military commander Qassem Soleimani through a drone strike by the US.

Mr. Trump assured that no Americans were hurt and that there was no major damage to the missile launches of Iran that targeted their base in Iraq.

“The fact that we have this great military and equipment, however, does not mean we have to use it. We do not want to use it. American strength, both military and economic, is the best deterrent,” Mr. Trump said, as reported by Reuters.

On Saturday, Iranian officials admitted that they had mistakenly shot down a commercial Ukrainian plane which killed all 176 aboard after initially denying they caused it in the tense aftermath of Iranian missile strikes on US targets in Iraq.

“The Islamic Republic of Iran deeply regrets this disastrous mistake,” Iranian President Hassan Rouhani wrote on Twitter, promising those behind the incident would be prosecuted.

For this week, RCBC’s Mr. Ricafort believes the market will continue to anticipate the phase one deal.

“Major catalysts include the widely expected signing of the phase one US-China trade deal on Jan. 15 that may be among the biggest positive lead for the global financial markets, including the peso,” he said.

Meanwhile, UnionBank’s Mr. Asuncion said the market will be on the lookout for key local data.

“The market would be waiting for the release of GDP (gross domestic product) growth numbers for 2019 Q4, slated for Jan. 23,” he said.

The economy grew by 6.1% in the third quarter, bringing the average growth for the nine-month period to 5.8%. In order to hit the government’s minimum target of 6% for 2019, fourth-quarter growth should hit at least 6.7%.

For this week, Mr. Ricafort sees the local unit playing around P50.40-50.90 a dollar, while Mr. Asuncion gave a forecast range of P50.50-50.80. — L.W.T. Noble with Reuters









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