The peso on Tuesday fell near its all time-low level against the US dollar on widening trade deficit and as the greenback sustained its strength against most currencies due to hawkish signals from the US Federal Reserve of more aggressive rate hikes.
The peso depreciated by 0.7 percent Tuesday to close at 56.37, down from 55.979 on Monday. It was the local currency’s weakest finish in nearly 18 years since Nov. 5, 2004 when it settled at 56.375. The peso opened Tuesday’s trading at 56.13 and at one point touched 56.45, its record low, before settling at 56.37.
“The peso exchange rate matched the record low vs. the US dollar at 56.45 earlier during the day, or the weakest for the peso in nearly 18 years since Oct. 13, 2004, amid record trade deficit on a monthly basis at -$5.679 billion and the stronger US dollar vs major global currencies,” Rizal Commercial Banking Corp. chief economist Michael Ricafort said in an emailed statement.
ING Bank Manila senior economist Nicholas Mapa said in an emailed response to Manila Standard that “aside from the concerns on policy, PHP [is] also getting walloped by current account side dynamics, with today’s trade deficit on full display.”
“With trade deficits of this magnitude and BSP forecasting a CA [current account] deficit of roughly $20 billion this year, the peso will likely stay on the back foot,” Mapa said.
Mapa, when asked if he sees the peso breaching the 57-per-dollar level in the coming days, said it “depends entirely on how BSP plays its cards in the next five weeks.”
Ricafort said the increase in new local COVID-19 cases also partly weighed on market sentiment.
The peso on July 7 pierced the 56-per-dollar boundary. It has been on a retreat mode against the greenback since the aggressive 0.75-basis point hike in the policy rate by the Fed middle of June, the biggest adjustment since 1994. Fed officials hinted of more and aggressive hikes to come.
Economists earlier said the Fed’s move would lead to a stronger US dollar against global currencies.
The inter-agency Development Budget Coordination Committee last week projected the peso-dollar exchange rate this year to settle between P51 and P53 against the greenback. For 2023 to 2028, the assumption was at P51 to P55 on heightened global uncertainty such as the aggressive monetary policy tightening by the US Fed, market aversion amid Russia-Ukraine conflict and increased global oil prices.
The peso ended 2021 at 50.99 against the US dollar, compared to 48.023 on the last trading day of 2020.