Peso likely to weaken vs dollar on expectations of high inflation

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THE PESO is seen to weaken versus the greenback this week amid expectations of faster inflation in October.

The local unit closed at P50.415 per dollar on Friday, gaining 29.5 centavos from its P50.71 finish on Thursday, data from the Bankers Association of the Philippines showed.

It also appreciated by 37.1 centavos from its P50.786 finish a week earlier.

The peso appreciated on expectations of the resumption of oil exports from Iran, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Iran’s top negotiator said nuclear talks with six world powers could be renewed by the end of November, Reuters reported. A deal could lead to the lifting of sanctions on Iran’s oil exports.

The peso also strengthened on the back of the continued decline in coronavirus infections, as this could support further reopening of the economy, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

Active cases increased by 4,008 to 47,690 on Saturday, based on data from the Department of Health.

Metro Manila will remain under Alert Level 3 until Nov. 14, the Palace announced on Friday.

Presidential Spokesperson Herminio “Harry” L. Roque, Jr. said they have kept the restriction measures to prevent the infections from spiking. It will also buy time for the government as it continues assessing whether to further ease restrictions, he said.

For this week, Mr. Ricafort said the market will monitor the inflation outturn for October. The Philippine Statistics Authority will release the inflation data for the month on Nov. 5.

A BusinessWorld poll of 21 analysts held last week yielded a median estimate of 4.9% for the consumer price index last month, matching the midpoint of the 4.5% to 5.3% forecast given by the Bangko Sentral ng Pilipinas (BSP).

If realized, October inflation would be above the 2-4% BSP target for the third straight month. It will also be faster than the 4.8% in September and the 2.5% seen a year earlier.

Analysts said food prices likely inched higher last month due to low supply caused by weather disruption. Continued increase in global oil prices also likely pushed inflation higher, they added.

Meanwhile, Mr. Asuncion said the market will take cues from the US Federal Reserve’s meeting this week.

The market is widely expecting the Fed to announce details of asset purchase tapering at the Federal Open Market Committee’s policy review on Nov. 2-3. However, markets have not yet priced in a rate hike, at least in the next few months.

For this week, Mr. Ricafort gave a forecast range of P50.20 to P50.60, while Mr. Asuncion expects the local unit to move within P50.50 to P51 per dollar. — L.W.T. Noble with Reuters