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Peso to weaken further on mixed US, Japan data

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THE PESO is seen to weaken further this week as the greenback is expected to be supported by slightly upbeat US economic data and possibly weak Japan fourth-quarter economic growth.

On Friday, the local unit closed at P51.48 and traded as low as P51.79 against the dollar, weaker than the P51.31 close on Thursday, due to wider trade deficit recorded in December.

Week on week, the peso finished slightly weaker than its P51.45 close last Feb. 2.

“The dollar might continue to move with an upward bias this week, supported by likely mixed to strong US reports on inflation and retail sales,” Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines (Landbank), told BusinessWorld in an e-mail.

Mr. Dumalagan said the dollar is seen to strengthen starting Wednesday due to “potentially mixed to upbeat US data on retail sales and inflation,” which will, in turn, weaken the peso.

On Thursday, the National Retail Federation said retail sales will grow 3.8-4.4% this year, faster than the 3.2-3.8% growth projections it gave last year. The faster outlook was boosted by the robust holiday season for retail sales.

The US consumer price index and producer price index, which will be released midweek, are  likewise seen to show a moderate or faster pace.

The data will be supported by upbeat employment data released early this month, as non-farm payrolls grew by 200,000 in January and as average hourly earnings were up 0.3%.

Mr. Dumalagan added that expectations on inflation and retail sales “may support the dollar by lending support to views of another US rate hike in March 2018.”

On Thursday, Kansas City Federal Reserve (Fed) President Esther L. George said the economic growth boosted by the American tax reform, provides pressure on the central bank to “reasonably” hike its interest rates three times this year.

New York Fed President William C. Dudley, meanwhile, said in an interview with Bloomberg TV that there was a potential to hike more than three times in 2018 “if the economy looks stronger as we go through the year.”

Landbank’s market economist also noted that the dollar is expected to get a boost from safe-haven buying as “possibly weaker fourth-quarter GDP (gross domestic product) growth data from Japan may also strengthen the dollar by fuelling demand for safer dollar assets.”

However, a report from Reuters showed that higher factory output in Japan might signal a solid fourth-quarter growth.

On Wednesday, the Japanese trade ministry showed factory output grew 2.7% in December from the previous month, faster than the 1.6% median estimate of the economists as well as the 0.5% gain booked in November.

For this week, Mr. Dumalagan sees the peso moving between P51.25 and P51.85, while Ruben Carlo O. Asuncion, chief economist of UnionBank of the Philippines, gave a slimmer forecast range of P51.40 to P51.70.

“The factors that could reverse the dollar’s forecasted upward bias include weaker-than-expected US reports on retail sales and inflation, stronger-than-expected fourth-quarter GDP report from Japan, and any positive updates on the Duterte administration’s tax reform and infrastructure program,” Mr. Dumalagan said. — Karl Angelo N. Vidal