Peso to drop on trade clash

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THE PESO is expected to weaken due to US-China trade tensions.

THE PESO will likely weaken against the dollar this week amid safe-haven buying due to continuing trade tensions between the United States and China.

The peso ended last week at P53.97 versus the greenback, recovering by 10 centavos from the P54.07-per-dollar finish the previous day due to slower-than-expected US inflation figure.

Week on week, the peso declined from its P53.73 finish on Sept. 7.

A foreign exchange trader said before the weekend that the peso will likely trade lower as the level of resistance at P54.10 will likely hold.

“For [this] week, I think the resistance of P54.10 will hold, so we might see the pair trading lower,” the trader said in a phone interview.

Meanwhile, Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said the dollar might appreciate this week on the back of renewed trade tensions between Washington and Beijing as well as “generally upbeat” US data.

In a report from Reuters, US President Donald J. Trump is expected to announce new tariffs on about $200 billion on Chinese imports as early as Monday.

Mr. Trump has already directed his aides to proceed with tariffs despite the attempts of Treasury Secretary Steven Mnuchin to restart trade talks with China.

“Such announcement, which may be released on Monday or Tuesday, could complicate or even derail high-level US-China talks later this month,” Mr. Dumalagan said in an e-mail.

Apart from this, Mr. Dumalagan said the dollar may get additional boost from last Friday’s “generally upbeat” US economic reports.

“While US retail sales grew less than expected in August 2018, consumer sentiment picked up the following month, suggesting a possible acceleration in consumer activity across all major socioeconomic groups,” he added, noting that this may amplify views of another round of tightening from the US Federal Reserve.

The dollar may continue its uptrend until Friday due to lingering geopolitical noise as well as caution ahead of the policy meetings of the Fed and Bangko Sentral ng Pilipinas (BSP).

“The BSP is expected to hike rates by about 25-50 bps in order to address concerns on elevated domestic inflation, while the US central bank is widely expected to increase rates by 25 bps in response to rising inflation and a tightening labor market,” Mr. Dumalagan said.

He also noted that expectations of a hawkish move from the BSP may temper the dollar’s gain.

For this week, the trader expects the peso to move between P53.85 and P54.10, while Mr. Dumalagan gave a P53.80-P54.30 range.

“The factors that could reverse or soften the dollar’s projected upward bias include surprising positive developments on the US-China trade conflict and unexpected hawkish moves from the [Bank of Japan],” the market economist added. — Karl Angelo N. Vidal with Reuters