More peso appreciation seen; Treasury bill rates to decline

by Louella D. Desiderio and Prinz P. Magtulis, BusinessWorld

Posted at Oct 18 2010 02:00 PM | Updated as of Oct 18 2010 10:00 PM

MANILA, Philippines - The peso is likely to continue strengthening this week, after hitting a 29-month high against the dollar last week, due to lingering dollar weakness.

Treasury bills, meanwhile, are expected to fetch lower rates at the auction today.

The peso closed at P43.175 per dollar last Friday, gaining 26 centavos from the previous week’s close at P43.35 per dollar.

The peso has been gaining ground against the dollar since July. Data from the Bangko Sentral ng Pilipinas (BSP) showed the peso averaged P46.3203 per dollar in July and appreciated to average P45.1825 per dollar in August and P44.3137 per dollar last month.

For this week, traders said the peso may trade within the P43 to P43.70 per dollar range.

A trader said the peso may post more gains against the greenback this week with continued capital flows to the Asian region due to its strong growth prospects.

Jonathan L. Ravelas, Banco de Oro Unibank, Inc. chief market strategist, said the peso-dollar close last Friday points to a test of the P43 level this week.

“Should the P43 support levels hold, a pullback towards P43.50 -- P43.70 is expected,” he said. A break out of the P43 level, on the other hand, suggests a test of the P42.50 level.

Another trader said that while peso appreciation is expected to continue, investors are expected to take some profits from the peso.

Treasury bill rates, meanwhile, are expected to continue to drop at the auction today with banks expected to swamp the sale.

Traders said rates of the 91-day, six-month, and one-year papers are expected to decline by as much as 40 basis points.

The benchmark 91-day T-bill fetched 3.9% at the Oct. 4 auction, while six-month and one-year papers fetched 4.2% and 4.415%, respectively.

“Huge inflows of foreign portfolio investments means there would be a lot of buying of government securities,” a trader said.

Foreign portfolio investments reached $1.421 billion as of Sept., more than six times the $227 million notched a year ago.

The trader said tenders for the papers could reach four to five times the government’s P7-billion offer.