Peso caught up in US election frenzy

Uncertainties over the US presidential elections would unlikely sink the peso to the record-low 59 level, regardless of the winner of the tight race to the White House, analysts said, although the local currency is still bound to feel some weakness this week.

The peso finished the first trading day of November at 58.34 against the greenback, 24 centavos weaker than its previous closing of 58.1.

Noel Reyes, chief investment officer for Trust and Asset Management Group at Security Bank Corp., said that the performance of the peso this week would depend on the US election results, adding that a victory for former US President Donald Trump might drag the local unit beyond the 58.50-mark.

But if Vice President Kamala Harris wins, Reyes believes that the greenback would weaken, a development that could stabilize the peso.

“The market has priced in a Trump win that [will lead to US Dollar] strength given his expansionary policies. A confirmed win could break 58.50 but will hold at under 59 since much of this event is already considered in the recent movement,” he said.

“On the contrary, a Harris win will be weak [US Dollar] and will reverse the trend, correcting to 57 handles,” he added.

Since she entered the race in July, Harris has had a narrow lead over Trump in the national polling averages, according to reports. But the leads in the so-called swing states were so tight that markets are still not ruling out the possibility of another Trump presidency.

Voters in the United States go to the polls on Nov. 5.

As it is, the US election frenzy is adding fuel to a rallying dollar that is already enjoying safe-haven inflows driven by expectations of slower rate cuts by the US Federal Reserve.

Domestic factors

The US central bank’s benchmark rate now sits between 4.75 and 5 percent following a jumbo half point cut in September. However, a slew of strong economic data releases in the past weeks had led market watchers to believe that the Fed might have to take it easy on the rate cuts.

For the rest of the week, Security Bank’s Reyes said the string of key economic data releases at home would have varying impact on the peso. The government will release the October inflation figure today, while the third quarter gross domestic product (GDP) performance will be out on Nov. 7, Thursday.

“Local CPI (consumer price index) for October should not be a market mover as this is unanimously expected to come out higher than September with a 2%+ handle,” Reyes said.

“GDP may only have an influence if it comes out significantly weaker than consensus 5.7 percent. This would suggest that the BSP (Bangko Sentral ng Pilipinas) may need to cut faster than the Fed and add to the upward pressure on USD-PHP direction,” he added.

For John Paolo Rivera, senior research fellow at Philippine Institute for Development Studies, a state-run think tank, the BSP has ample reserves that it can use to arrest a sharp peso slide that can stoke inflation.

“PHP performance may be affected by the upcoming US elections. However, I do not see it weakening to as low as 59 or 60 as the BSP is capable enough to manage forex since we have sufficient reserves to manage forex movements,” Rivera said.