Peso to rise on dollar volatility

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THE PESO may sustain its rally this week as the dollar remains weak, with negative news in the United States leaving investors less upbeat, dampened further by the impact of a hurricane that was bound to hit over the weekend.

The local unit closed at P50.87 versus the greenback on Friday, logging a fresh one-month high since its P50.795-per-dollar finish on Aug. 10.

Week on week, the peso appreciated by 30 centavos coming from its P51.17 finish tallied on Aug. 31 as it rallied for five straight sessions to return to the P50 level.

Two traders interviewed over the weekend said the peso may continue to maintain strength this week, as market players remain pessimistic about the US economy’s prospects.

“In the first three days of the week, the dollar might initially depreciate as market sentiment may sour after the onslaught of Hurricane Irma, which is projected to hit the US early Sunday morning. The dollar’s movement on Monday may track the greenback’s decline last Friday evening,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.

“Market volatility might still be elevated because of local and global political noise.”

Hurricane Irma was expected to hit Florida on Sunday, and is classified as a category three storm with maximum sustained winds of 125 miles per hour.

Last week saw the US dollar depreciate against a host of currencies including the peso, with the euro and the Canadian dollar posting gains on the back of fresh news from their central banks.

Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo also attributed the dollar’s fall to weak jobs data in the US, which he said dimmed the chances of a rate hike from the Fed this year. Fed vice-chair Stanley Fischer also announced his resignation last week, which further deflated any hopes of a third rate hike in the US by December with one less hawk sitting in the policy-making body.

“Events in the US are not good for their economy. It’s as if the Fed’s December hike is no longer on the table,” a currency trader added, noting that the peso will likely go lower barring any unexpected events that could shake up sentiment.

For today, the trader sees an even lower range from P50.40-P50.80, noting that the market is not anticipating any major data releases which could significantly change investor appetite over the coming week.

On the other hand, Mr. Dumalagan expects the peso to trade within P50.75 to P51.05, while noting that the dollar could see an upward bias this week should US inflation show “some improvement” in August.

“On Thursday and Friday, the dollar might rebound amid likely mixed to upbeat US data on producer and consumer price inflation,” Mr. Dumalagan said. “While these reports might not significantly increase the probability of another US rate hike this year, they could at least keep such possibility alive.” — Melissa Luz T. Lopez