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Friday, March 29, 2024

Peso extends losses to hit 54.31 per dollar

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The peso extended its losses Tuesday, hitting a low of 54.31 against the US dollar for the first time in nearly 13 years, as oil prices in the world market surged and amid expectations the US Federal Reserve will raise interest rate this week.

Data showed the peso lost eight centavos to close at 54.31 a dollar Tuesday from 54.23 Monday. It was its weakest finish in almost 13 years, or since it settled at 54.425 against the greenback on Nov. 22, 2005. Around $668.35 million changed hands Tuesday, slightly down from $670.6 million Monday.

The local currency was down 8.8 percent this year, since closing at 49.93 a dollar on Dec. 27, 2017.

Traders and bankers are now expecting the local currency to settle within a range of 54.50 to 55 per dollar by end-2018.  London-based think tank Capital Economics said the peso may further weaken to 58 a dollar next year.

The peso has been under pressure amid the widening trade deficit, as the country raised its imports of capital goods, oil, and raw materials to fund growth.

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Oil prices surged this week, which could further increase demand for the dollar.  Data from the Energy Department showed that oil imports jumped 34.4 percent in the first six months, on the back of higher shipments and value of crude oil and finished products in the world market.

The country’s total oil import bill reached $6.311 billion in January to June, up from $4.695 billion recorded in the same period last year.

Trade deficit hit $22.49 billion in the first seven months, significantly higher than the $13.055-billion shortfall a year ago.  The current account, a component of the balance of payments, yielded a deficit of $3.1 billion in the first half,  a significant increase from a shortfall of $133 million a year ago. 

The first-half current account deficit was equivalent to 1.9 percent of the gross domestic product. 

Prakash Sakpal, ING Bank Asia economist, said in an earlier report that remittances were insufficient to cover the trade deficit and the current account in deficit on a sustainable basis.

Money sent home by Filipinos working overseas rose 3 percent in the first seven months to $16.58 billion.

Financial markets were rattled by reports said that the trade dispute between the US and China”•the world’s two biggest economies further escalated, as Washington D.C. imposed additional tariffs on $200 billion worth of Chinese goods.  Beijing retaliated with tariffs on $60 billion worth of US products.

ING said the Bangko Sentral ng Pilipinas would likely intervene in the spot market to prevent the local currency’s further depreciation.

“We expect BSP to also directly intervene in the spot market to manage PHP’s weakening trend. A key to this is the country’s FX reserves. We expect government to issue an additional $1.5 billion to $2 billion of global bonds before the end of the year. The proceeds would raise FX reserves and BSP’s ability to participate actively in the spot market,” ING said.

“We also expect capital inflows from equity offerings which could amount to $1.5 billion to $2 billion. Combine this with BSP’s tightening bias for the rest of the year and structural inflows for the Christmas season. These together with further improvement on EM risk appetite could bring some peso strengthening before the end of the year,” the bank said.

Finance Undersecretary Gil Beltran said the US Federal Reserve’s monetary normalization was propping up the dollar against other currencies.

“The Philippine peso has been moving in tandem with Asian currencies amid severe exchange rate volatility spawned by the global trade war, the Turkey-Argentina crisis, and the Fed monetary normalization,” Beltran said in an economic bulletin. 

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