Peso may weaken anew as virus death toll continues to increase

THE PESO could weaken anew this week following the previous week’s rally, depending on market sentiment on developments in the coronavirus disease 2019 (COVID-19) outbreak.

The local unit ended trading at P50.56 on Friday, depreciating by six centavos from its Thursday close of P50.50.

Week on week, however, the peso strengthened by 19.50 centavos from its P50.755-per-dollar close on Feb. 7.

A trader attributed the peso’s strength week on week to the outlook upgrade from Fitch Ratings and some local data.

“When Fitch announced the outlook upgrade, the peso strengthened. This, along with narrowing trade deficit made the peso stronger,” a trader said in a phone call.

On Tuesday, Fitch Ratings upgraded its outlook for its credit rating on the Philippines to “positive” from “stable,” citing the country’s sound macroeconomic policy is poised to continue which could bolster growth and keep inflation stable.

A positive outlook could mean a country’s rating will be maintained or upgraded.

The global ratings agency affirmed the country’s credit rating at “BBB,” which is a notch above the minimum investment grade. The government is targeting an “A” level rating to clinch lower debt rates as the country is poised to become an upper middle income country.

Meanwhile, data from the Philippine Statistics Authority showed the country’s trade deficit was at $2.48 billion in December, narrower than the $4.17-billion gap in the same month of 2018. This was the lowest in six months or since the $2.37-billion trade deficit seen in June.

For the whole of 2019, the trade gap reached $37.05 billion, narrowing from the $45.53-billion gap the prior year.

For his part, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort noted that the peso’s performance was affected by market sentiment from signals from the US Federal Reserve.

“The peso was weaker on Friday, but still among the strongest in two years, amid recent Fed signals about steady key US interest rates,” Mr. Ricafort said in a text message.

Reuters reported that Fed Chairman Jerome Powell assured the Congress on Tuesday that the US economy is still in a good place despite potential threats due to the virus outbreak.

“There is no reason why the expansion can’t continue,” Mr. Powell said, repeating the central bank’s view that its current target range for short-term borrowing costs, between 1.50% and 1.75%, is “appropriate” to keep the expansion on track.

The trader said the peso may trade sideways this week.

“Moving forward, you will expect the peso to trade sideways. It’s because the dollar has slightly oversold,” the trader said.

For his part, Mr. Ricafort said that developments related to the coronavirus could dictate market movements including trading this week.

“Any increase in global market risk aversion due to lingering concerns over the coronavirus disease especially if cases and deaths increase sharply, could lead to lower demand for oil, slower global economic growth and slower global inflation that could prompt more dovish monetary policy by various central banks,” he said.

Reuters reported that total cases in Hubei, which is the center of the outbreak, have reached 56,249 on Saturday, citing data from the province’s health commission. Meanwhile, deaths have risen to 1,669.

Chinese President Xi Jinping has instructed the country’s officials to keep economic and social control as they battle against the virus.

For this week, the trader expects the peso to trade at a range of P50.30-P50.60 against the dollar, while Mr. Ricafort sees the local unit playing around the P50.30-P50.70 levels. — L.W.T. Noble with Reuters