THE Philippine peso slid back to the 61-per-dollar level as Brent crude nearly touched the $90 per barrel level amid renewed external pressures as negotiations between the United States and Iran stalled.
Data from the Bankers Association of the Philippines (BAP) showed the peso closed at P61.26 against the dollar on Tuesday.
This is 55.5 centavos or over half-a-peso weaker than its previous finish of P60.705 against the greenback on Monday.
John Paolo R. Rivera, Senior Research Fellow at Philippine Institute for Development Studies (PIDS) said this ‘likely reflects renewed external pressures, particularly the rise in global oil prices amid uncertainty in the Middle East and continued caution ahead of US inflation data.’
As a net oil importer, Rivera said higher oil prices tend to increase the Philippines’s demand for dollars and put pressure on the peso.
The senior research fellow for the state think tank said Brent crude rose about 5 percent over two days as US-Iran negotiations ‘stalled.’
This was almost echoed by Jonathan L. Ravelas, senior adviser at Reyes Tacandong and Co., who said: ‘The USD/PHP fell to 61.26 on higher oil prices and stronger dollar as US-Iran peace talks fall anew.’
For his part, Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UBP) said the peso’s weakness appears to have been driven more by external factors than domestic developments.
‘Rising US Treasury yields, a stronger US dollar, and the sharp increase in oil prices amid Middle East tensions likely weighed on emerging market currencies, including the peso,’ added Asuncion.
While markets also reacted to Bangko Sentral ng Pilipinas’s (BSP) Governor Eli Remolona Jr.’s remarks that slower GDP growth has eased pressure for further policy tightening, Asuncion said: ‘The magnitude of the peso’s depreciation suggests global factors were the more dominant driver.’
Asuncion pointed out that as long as Brent crude remains near $90 per barrel and US Treasury yields stay elevated, the peso ‘may continue to face depreciation pressure.’
‘In the near term, global developments, particularly US inflation data, Federal Reserve expectations, and oil market dynamics, are likely to be more important drivers of the exchange rate than domestic factors,’ Asuncion explained further.
Rivera also noted that the peso is expected to remain volatile with movements ‘largely influenced’ by oil prices, geopolitical developments, US monetary policy, and domestic economic conditions.
‘Some depreciation is manageable, but sustained weakness could add to imported inflation, so stability rather than defending a particular forex rate level is more important,’ added the PIDS senior research fellow.
Ravelas expects the local currency to trade within the 61.00-61.50 range against the dollar in the near term.
Within Tuesday’s session, the local currency traded from as strong as 60.9 to as weak as 61.275 against the greenback.