Peso expected to hit 50/$1 this week

The peso took another beating from the US dollar last Friday as it shed 22 centavos more to end the week at 49.78 from 49.56 a day ago.

Traders expect the local currency to weaken to the P50/$1 level by this week and to trade at the 49-level until next year due to external developments.

The peso is seen to trade between 49.50 and 50.30 per $1 next week.

But BSP Deputy Governor Diwa Guigundo said he was not worried about the current performance of the peso, even as it is already above the government’s P47 to P49/ $1 range assumption for the year.

“As long as the volatility remains manageable and speculative plays are held at bay, we should allow the adjustment to continue,” he said.

“After all, we should remember that our fundamentals remain sound with third quarter real GDP (gross domestic product) at 7.1 percent, which would anchor all of these adjustments and re-balancing to manageable proportions. The BSP remains attentive and we keep on monitoring the situation,” he added.

A trader said the peso’s continued weakening follows a regional trend after the statements made by Federal Reserve Chairman Janet Yellen during the Congress’s Joint Economic Committee last Thursday, hinting at a rate increase next month.

The trader explained that the comparative rate of the Fed futures and the actual rate hike “is higher” in the last two years, except in the second quarter this year after the “yes” vote for a Brexit won.

”And the markets have priced in a hike this December,” the trader said, also citing possible hikes in June and December 2017 as additional plus factors for the US currency.

Traders and analysts alike attribute the weakness of the local currency to the higher probability of an increase in the Federal Reserve’s key rates during the Federal Open Market Committee (FOMC) meeting from Dec. 13 to 14.

Guinigundo said the local currency “is normally our first line of defense in adjusting to new shocks to the peso and the rest of the economy.”

He said that “given the uncertainties surrounding the new leadership in the US, Brexit, the US Fed interest-rate hike and the China slowdown, the peso is now our adjustment tool.”

Amid this downtrend, the peso is expected to recover on expected large remittances flows for the holiday season and if the Fed rate-hike expectations are met.

”There could be some relief but markets will re-assess,” the trader said.

If ever the Fed delivers an increase in December, the trader said US monetary officials were expected to remain hawkish, especially because of the possible impact of the protectionist policy of US President-elect Donald Trump.

The trader said markets would not be happy with any negative growth for remittances and this was expected to contribute to the weakness of the peso and the Philippine Stock Exchange index (PSEi) down the line.

With the protectionist policy announced by Trump during the campaign period, the Philippines’s business process outsourcing (BPO) sector is seen to be vulnerable but the trader said some analysts “do not expect the impact to be that big” compared to the time when the affected business involved construction of manufacturing facilities.

Last Friday, the peso opened at 49.70, weaker than the 49.36 a day ago.

It traded between its opening level and 49.80 resulting in an average of 49.77.

Volume of trade reached $812.9 million, lower than the $821.5 million in the previous session.

On the other hand, the Philippine Stock Exchange index (PSEi) gained 0.25 percent, or 17.61 points, to 7,067.73 points; and the All Shares rose by 0.28 percent, or 11.88 points, to 4,254.28 points.

Four sectoral indices finished the week with gains, led by the 2.28 percent increase of the Mining and Oil.

The Holding Firms, Industrial, and Services went up by 0.51 percent, 0.40 percent and 0.001 percent, respectively.

On the other hand, Property and the Financials contracted by 0.12 percent and 0.02 percent, respectively.

Volume of trades reached 1.8 billion shares amounting to P5.96 billion.

Gainers led losers at 90 to 81 while 50 were stocks were unchanged. LUIS LEONCIO