Peso may hit P53; T-bill rates to slip

Business World
Vol. XIX, No. 129
Monday, January 23, 2006 MANILA, PHILIPPINES

Banking & Finance

Peso may hit P53; T-bill rates to slip

The peso is likely to test the P53 level this week as dollar demand continues to grow while supply has diminished, dealers said.

"The peso has corrected. The market will try to test P53. It all depends on demand and what news will be coming out," a currency trader from a local bank said.

Last Friday, the local currency closed at P52.96, ending the week lower by 1.1% amid strong corporate demand for the greenback and the continued strengthening of the dollar against regional currencies.

Banks said foreign exchange remittances from overseas Filipino workers, which lifted the peso in 2005 to its highest in more than two years, have slowed down since the end of the Christmas season. They said the peso’s recent weakness could mean that it has ended its appreciation against the dollar, at least for now.

"The peso failed to break [past] P52.25 and didn’t reach P52. It has started to correct which is also good since the pace at which it rose last year was too fast," one trader said.

"Chartwise, the week’s close at P52.96 implies that a reversal is at play and a near-term bottom is in place at the P52.25 levels. Expect further tests towards the P53.25 to P53.50 levels in the coming weeks," said Jonathan L. Ravelas, Banco de Oro Universal Bank’s market strategist.

But a trader from a foreign bank said the P53 barrier could prove to be difficult to break.

"There will be strong resistance for it to break P53. This may be viewed as a big opportunity for offshore players to come in. Foreigners are watching out for re-entry levels especially those who were left out before," he said, referring to the peso’s quick rise starting October from the past-P56 levels to nearly P52.

T-BILL RATES TO DROP ANEW

Meanwhile, premium risk rates of Treasury bills are likely to move down in today’s auction amid expectations that the government’s budget deficit for last year will be lower than expected. But traders said the effect on rates will be minimal since such expectations have already been factored in.

"Rates have gone down significantly. It should stabilize, correct a little. But the Treasury may be unwilling to let rates rise and since the supply is few, banks will have to compete," a bond dealer from a foreign bank said.

At the auction last week, the rate of the three-month paper -- which banks use in pricing loans -- fell by 9.8 basis points (bps) to 4.863%. The last time the paper fetched nearly the same price was on April 15, 2002 when it was sold for 4.347%. It reached its lowest level since 1987 on April 30, 2002 when it was sold for 4.299%.

The rate of the six-month paper also decreased 12.1 bps to 6.314% while the rate of the one-year paper dropped 11 bps to 7.289%.

Since the start of the year, the rates of the six-month and one-year papers have fallen by almost a percentage point. They traded from 7.206% and 7.969%, respectively. -- Karl Lester M. Yap