Peso rises to 2-month high on Iran deal

The peso strengthened to an almost two-month high against the dollar on Tuesday on easing inflationary pressures, with the United States and Iran signing an interim peace deal that would reopen the Strait of Hormuz.

The currency jumped by 16 centavos to close at PHP 60.32 versus the greenback from PHP 60.48 on Monday, based on Bankers Association of the Philippines data posted on its website.

This was its best finish in almost two months or since it ended at PHP 60.13 on April 22.

The local unit opened Tuesday’s session stronger at PHP 60.40 per dollar. Its intraday high was at PHP 60.295, while its low was at PHP 60.50 against the greenback.

Dollars traded surged to USD 2.51 billion on Tuesday from USD 1.68 billion on Monday.

The peso extended its gains following the continued decline in global crude oil prices to USD 70 per barrel levels amid the partial reopening of the Strait of Hormuz, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

Oil prices slid to fresh three-month lows on Tuesday as markets weighed prospects for a resumption of supplies through the Strait of Hormuz alongside weaker physical demand and scant details on a preliminary deal to end the Iran war, Reuters reported.

Brent crude futures were down USD 1.44 or 1.7% at USD 81.73 a barrel, the lowest since March 10, at 0906 GMT.

US West Texas Intermediate was down USD 1.55 or 1.9% at USD 79.20 a barrel, also the lowest since March 10.

Oil prices had already dropped nearly 5% on Monday to their lowest close since March 4 after US President Donald J. Trump said a memorandum of understanding had been signed to end the US-Israeli war with Iran, though full details have not been released.

Iranian Foreign Minister Abbas Araqchi said on Tuesday Iran and the US would start a new round of talks in Switzerland on Friday to reach a final agreement after the start of an interim deal.

He warned that any Israeli attack on Lebanon or continued presence on Lebanese territory would breach the interim agreement.

The conflict led to the closure of the Strait of Hormuz, which typically carries about one-fifth of global oil supplies.

Some analysts expect flows through the strait to resume soon, adding to downward pressure from already soft physical markets.

The dollar held near 10-day lows on Tuesday as a preliminary deal to end the Iran war buoyed risk appetite, while the yen teetered near the closely watched ¥160 level after the Bank of Japan hiked interest rates, as expected, in an effort to tame inflationary risks from the conflict.

“The peso continues to appreciate on expectations that the BSP (Bangko Sentral ng Pilipinas) will deliver on a policy rate hike, while the US Federal Reserve is expected to hold its policy rates unchanged. If realized, this will widen the interest rate differentials between the Philippines and the US, which is seen to boost the local currency,” a trader added in a Viber message.

A BusinessWorld poll showed that 15 of 20 analysts expect the Monetary Board to raise benchmark rates by 25 basis points (bps) for a second straight meeting on Thursday, which would bring the policy rate to 4.75%. Meanwhile, four analysts anticipate a 50-bp hike to bring the key rate to 5%, while one expects the BSP to hold fire.

For its part, the Fed is widely expected to leave rates at 3.5% to 3.75% on Wednesday at Chair Kevin Warsh’s debut meeting, Reuters reported. The statement, economic projections and news conference will be scrutinized for any signs of the Fed dropping its easing bias as officials grow more hawkish on inflation risks.

For Wednesday, the trader said the peso could continue to find support from positive news about the Middle East conflict’s resolution. It sees the currency moving between PHP 60.15 and PHP 60.40 against the dollar, while Mr. Ricafort said it could range from PHP 60.20 to PHP 60.45. — Aaron Michael C. Sy with Reuters