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Peso to drop on US-China issues

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peso dollar 061318 - Peso to drop on US-China issues

THE PESO is expected to weaken against the dollar this week amid uncertainty over the trade negotiations between the United States and China and following the recent cut in banks’ reserve requirement ratio (RRR).

The local unit closed Friday’s session at a seven-week low of P52.63 versus the greenback against the P52.48 finish on Thursday as market participants responded to the Bangko Sentral ng Pilipinas’ (BSP) 200-basis-point reduction in big banks’ RRR. Week on week, the peso also declined from the P52.12-per-dollar close on May 11.

“We will have to wait and see for the developments on the trade talks since it’s very vague…,” a foreign exchange trader said in a phone interview.

Chinese Foreign Minister Wang Yi told State Secretary Mike Pompeo that the US should not go “too far” in the dispute of both countries, adding that their words and actions had harmed the interest of China and its enterprises, Reuters reported.

“I still expect the peso to depreciate. This is largely due to the external headwinds on trade issues,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in a text message yesterday.

He added that the impact of the recent cut in banks’ RRR will “most likely be towards strengthening,” although it can be offset by the external issues.

The BSP last week said it will trim big banks’ 18% RRR by a percentage point on May 31 and by another 50 basis points on June 28 and on July 26. Trimming the RRR by a percentage point is expected to unleash P90-100 billion into the financial system.

“It’s more of the expectation on growth impact. Longer term will be strengthening,” Mr. Asuncion said.

Meanwhile, a market analyst said the dollar will likely strengthen this week due to safe-haven buying amid escalating US-China trade tension, firm US consumer sentiment, as well as caution ahead of the release of the minutes of the last Federal Open Market Committee meeting.

“In the first four days of the week, the dollar is expected to appreciate further after US consumer sentiment for May 2019 jumped to its highest level in more than two years,” the analyst said.

For this week, the trader and Mr. Asuncion expect the peso to trade between P52.40 and P52.80, while the analyst gave a P52.30-P53 range. — K.A.N. Vidal

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