Peso slumps to fresh 8-yr. low as data point to a US rate hike

The peso kept its losing streak for the seventh trading day on Thursday, as the latest economic data suggested the US economy is picking up and the minutes of the Federal Open Market Committee (FOMC) meeting supported the case for an interest rate hike.

The local currency shed 12 centavos to close at P49.980:$1 from 49.860 on Wednesday, its lowest since November 20, 2008, when it traded at P49.999 to a dollar during the global financial crisis.

"The peso depreciated today, as upbeat US reports on manufacturing and durable goods orders reinforced the hawkish tone of the recent US policy meeting minutes," Guian Angelo Dumalagan, market economist at the Land Bank of the Philippines, told GMA News Online.

"These developments increased the likelihood of a US rate hike next month," he said.

According to a report by Reuters, minutes of the Fed's November 1-2 meeting, the last one ahead of the US election, showed the central bank was gearing up to raise rates. 

Also, US data on Wednesday showed new orders for US manufactured capital goods rebounded last month while consumer sentiment rose this month following Donald Trump's election which many viewed as positive for their personal finances and the economy, Reuters said in a separate report.

For her part, Cherica Vicente, research analyst at MetisEtrade noted the US dollar is gaining more strength in the run up to a yield rate increase in the world's largest economy come December.

"This is still caused by the US dollar's strength, especially after the positive report on US durable goods orders last night and the release of the last FOMC meeting minutes," she said.

"Both releases backed the possibility that the Federal Reserve will raise interest rates in December, which propped up the US dollar and pushed down the Philippine peso further," Vicente added.

10-yr. low, BPS intervention

During the morning trade, the peso plumbed an intra-day low of 50:$1 and a high of 49.94 after it opened at 49.65, data from the Philippine Dealing System showed.
It was the lowest for the Philippine currency since November 11, 2006 when it traded at P50.12 to a dollar.

State banks or foreign exchange authorities in China, India, Indonesia and the Philippines were all suspected of intervening to slow the slide in their currencies on Thursday, according to a separate report from Reuters.

"For the Philippines, BSP (Bangko Sentral ng Pilipinas) regularly intervenes to reduce volatility rather than to achieve a target exchange rate. There is nothing new there," Ildemarc Bautista, head of research at Metropolitan Bank & Trust Co., said.

Dumalagan noted central banks in general aim to limit excessive exchange rate volatility.

"This is true for China, India and the Philippines, while I cannot confirm the presence of an intervention from BSP today, I have observed a strong resistance at the 50 level. The BSP I think wants to keep the peso's depreciation gradual," he said. — VDS, GMA News