Peso weakens against the dollar after surprise OPEC+ production cut

THE PESO weakened against the dollar on Monday after the Organization of the Petroleum Exporting Countries and its allies (OPEC+) announced a surprise oil production cut on Sunday.

The local currency closed at PHP 54.73 versus the dollar on Monday, declining by 37 centavos from Friday’s PHP 54.36 finish, data from the Bankers Association of the Philippines’ website showed.

The peso traded weaker than its Friday close the entire day, opening Monday’s session at PHP 54.40 per dollar, which was already its intraday best. Its worst showing was at PHP 54.77 versus the greenback.

Dollars traded rose to USD 1.201 billion on Monday from the USD 942.6 million recorded on Friday.

The peso declined after the surprise OPEC+ announced an output cut of about 1.16 million barrels per day (bpd), Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Mr. Ricafort added that the dollar also strengthened against other major currencies on Monday, adding to the weakening of the peso.

“Looks like this is a reaction to OPEC+ surprise decision to cut production, which means higher oil prices,” a trader likewise said in a Viber message.

“Higher oil price means more dollars needed to cover,” the trader added.

The dollar rose against other major currencies on Monday as fears over inflation resurfaced after a surprise announcement by major oil producers to cut production targets further, with traders wagering the US Federal Reserve may need to increase interest rates again at its next meeting, Reuters reported.

The announcement on Sunday by the OPEC+ of output target cuts caused oil prices to jump by around 8% in early trade in Asia on Monday. Brent crude was last trading at USD 84.12 per barrel, up USD 4.21 or 5.3%.

OPEC+ had been expected at a meeting on Sunday to stick to cuts of 2 million bpd already in place until the end of 2023, but instead announced further output cuts of around 1.16 million bpd.

The dollar index, which measures the US currency against six peers, was 0.078% higher at 103.01, breaking past 103 for the first time in a week.

For Tuesday, the trader sees the peso moving between PHP 54.50 and PHP 55 per dollar. Meanwhile, Mr. Ricafort expects the local currency to trade from PHP 54.60 to PHP 54.85 against the greenback. — A.M.C. Sy with Reuters