Philippine Peso Strengthens on Strait of Hormuz Reopening Hopes and BSP Rate Expectations
Key Takeaways
- •The peso closed 8.8 centavos stronger at P61.65 per dollar on Wednesday, trading above Tuesday's finish throughout the session, with dollar turnover rising to $1.901 billion from $1.57 billion.
- •Market optimism over Iran-Oman talks to reopen the Strait of Hormuz lifted the currency, while Brent crude fell more than 2% to $86.45 per barrel, its third straight daily decline.
- •A BusinessWorld poll showed 19 of 24 analysts expect the BSP to raise rates by 25 basis points on Thursday, adding to cumulative hikes of 50 basis points to 4.75% since tightening began in April.
- •July inflation of 5% remains well above the central bank's 3% target, but second-quarter growth slowing to a post-pandemic low of 2.3% could allow policymakers to be less aggressive.
- •Traders see the peso moving between P61.50 and P61.75 per dollar on Thursday, while economist Michael L. Ricafort expects a range of P61.55 to P61.75.
The Philippine peso strengthened on Wednesday as market sentiment improved on news of a possible reopening of the Strait of Hormuz, which pulled global oil prices lower, and ahead of the Bangko Sentral ng Pilipinas' (BSP) policy review.
The local unit climbed by 8.8 centavos to close at P61.65 per dollar on Wednesday, improving on its P61.738 finish on Tuesday, according to data on the Bankers Association of the Philippines' website.
The currency opened the session stronger at P61.63 against the greenback and traded better than Tuesday's close throughout the day. It reached an intraday high of P61.52, while its weakest showing was at P61.675. Dollars exchanged climbed to $1.901 billion from $1.57 billion.
"The peso gained on market optimism of a Hormuz deal between Iran and Oman, which is seen to settle the conflict in the Middle East," a trader said in a Viber message.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the development renewed hopes of a resolution to the nearly six-month war in the Middle East, which pulled global oil prices down.
Iran said it had restarted talks with Oman to manage the Strait, as it faces heightened economic pressure from US President Donald J. Trump in the nearly six-month conflict that has roiled oil markets and stoked global inflationary worries, Reuters reported.
Brent crude futures fell for a third straight day on Wednesday, sliding more than 2% to $86.45 per barrel on the prospect of more supply coming through the Strait, which handled a fifth of the world's traded oil before the war.
The Philippines relies heavily on imported fuel, so swings in global oil prices feed into the country's import bill and inflation outlook, a key reason peso traders track Middle East developments closely.
Looking ahead to Thursday, the trader said the peso could rise further versus the dollar amid the widely expected third straight BSP rate hike.
A BusinessWorld poll conducted last week showed 19 of 24 analysts expect another 25-basis-point (bp) increase at the Monetary Board's fourth rate-setting meeting this year. Since it began tightening in April, the Monetary Board has raised key borrowing costs by a cumulative 50 bps to 4.75%.
BSP Governor Eli M. Remolona, Jr. has said the central bank's inflation fight is not yet over, as recent data have not proven a sustained disinflation trend. Inflation stood at 5% as of July, well above the central bank's 3% target.
However, economic growth weakening for a fourth straight quarter to a post-pandemic low of 2.3% in the second quarter could give policymakers room to be less aggressive. Thursday's decision, along with the statement accompanying it, will be watched for how the Monetary Board weighs that trade-off between price stability and a slowing economy.
For Thursday, the trader sees the peso moving between P61.50 and P61.75 per dollar, while Mr. Ricafort expects it to range from P61.55 to P61.75.
— Katherine K. Chan
