Peso down vs USD after yuan devaluation

By , on August 11, 2015


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MANILA — The Philippine peso shed P0.17 and ended Tuesday at 45.93 to a greenback after the People’s Bank of China (PBoC) devalued the yuan by nearly two percent in line with market reforms targeted to support the world’s second largest economy.

Bank of the Philippine Island (BPI) lead economist Emilio Neri Jr. said the local currency’s drop is still low against other currencies in the region.

Despite the weakening of the local unit, Neri explained that its depreciation remains in the middle of the band in the region at about 2.6 percent to date compared to the double digit lost by the Malaysian ringgit and Indonesian rupiah.

“Today’s decision by the PBoC was unexpected but it was made to prop up the Chinese economy since it is not doing so well now,” he told PNA in an interview.

For the day, the peso opened at 45.70, little changed from the 45.73 a day ago.

It even strengthened to 45.67 mid-trade but was pulled down after Chinese monetary officials announced the latest devaluation of the yuan.

This brought the day’s average to 45.86.

Volume of trade surged to USD 1.1 billion from the previous trading’s USD 541.8 million, which Neri attributed to investors’ decision to take advantage of the situation and book gains.

He also said that anticipations for a hike in the Federal Reserve rates remain despite the lower-than-expected increase of the July 2015 US non-farm payrolls at 215,000.

He said probability of a Fed rate hike in September is about 38 percent before the release of the non-farm payrolls data but it increased to about 52-56 percent after the release of the report.

Thus, the currency pair is seen to trade weaker in the near term with the range eyed between 45.80 to 46.00 until Friday.

Neri expects the peso to end 2015 at 46-level but it is seen to trade at 47-48 level to a dollar next year.

“Fed rates are expected to be gradually increased. This year markets expect a one-time hike but next year it is seen to be increased by two to three times,” he added.