Peso falls as US-Iran clashes push up oil

The peso depreciated against the dollar on Monday to end a three-day climb as the intensifying Middle East war drove up global crude oil prices, raising fresh inflation risks.

The currency declined by 9.9 centavos to close at PHP 61.686 per dollar from PHP 61.587 on Friday, based on data on the Bankers Association of the Philippines’ website.

The local unit opened Monday’s session weaker at PHP 61.65 versus the greenback, which was already its best showing for the day. Meanwhile, its intraday low was at PHP 61.71 per dollar, inching near its record-low close of PHP 61.75.

Dollars traded slumped to USD 670.5 million from USD 1.087 billion previously.

“The dollar-peso closed higher on escalating tensions in the Middle East, which resulted in higher oil prices,” a trader said by phone.

“The US dollar/peso exchange rate corrected slightly higher… after Brent crude oil increased to new one-month highs after the recent clashes between the US and Iran as they escalated hostilities,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message. “Iran allegedly targeted ships attempting to transit the Strait of Hormuz, attack on a key oil facility in Kuwait over the weekend, as Iran retaliated against US allies in the Middle East, including Kuwait.”

Oil prices reversed early gains on Monday after Iran’s foreign ministry said negotiations with the US could be pursued based on national interests, Reuters reported.

Benchmark prices had earlier touched more than one-month highs on concern over disruption to shipments through the Strait of Hormuz.

Brent crude futures were down 14 cents or 0.16% at USD 87.96 a barrel by 0852 GMT after hitting USD 91.42 for their highest since June 11.   

US West Texas Intermediate crude was down 50 cents or 0.61% at USD 81.99 after touching its loftiest level since June 12.

The dollar was broadly steady on Monday as uncertainty about the outlook for the conflict in the Middle East kept traders cautious.

The dollar index, which measures the greenback’s strength against a basket of six currencies, was down 0.1% at 100.72.

Strikes between the US and Iran continued as part of an escalating cycle of attacks after an interim ceasefire agreement signed a month ago unraveled, deepening a struggle for control over the Strait of Hormuz that has disrupted energy supplies and stoked fears of global inflation.

Meanwhile, the peso’s slide may have been cushioned by central bank intervention as there has been some “resistance” at the PHP 61.60-PHP 61-70 levels, Mr. Ricafort said.

BSP Governor Eli M. Remolona, Jr. has said the central bank periodically intervenes in the foreign exchange market to prevent sharp, potentially inflationary swings in the peso.

For Tuesday, the trader said the peso could trade between PHP 61.50 and PHP 61.75 against the dollar as players track developments in the Middle East, while Mr. Ricafort sees it ranging from PHP 61.55 to PHP 61.75. — Aaron Michael C. Sy with Reuters