Metrobank sees peso strengthening to 49:$1

MANILA, Philippines — The peso may strengthen further to the 49 to $1 level if the price of crude oil in the world market falls further amid the global outbreak of the novel coronavirus disease 2019 (COVID-19), according to Metropolitan Bank & Trust Co.

Metrobank research analyst Pauline Revillas said the peso may hit 49 if Brent crude spot prices fall below the $50 per barrel level.

The Philippines is a net importer of oil and oil importers purchase the commodity using dollars – these importers therefore exchange their holdings of peso for the greenback for oil imports,” Revillas said, adding that “a decline in the price of global crude oil could translate to lower demand for US dollars and thus an appreciation bias for the peso, and vice versa.”

Revillas said a rise or fall in global oil prices could likely influence the depreciation or appreciation of the peso.

“Brent crude spot price and the dollar-peso rate have an inverse relationship albeit not a strong one,” Revillas said.

Citing Bloomberg commodities data, Revillas said Brent crude contract price fell to $54.8 per barrel, while the West Texas Intermediate (WTI) dropped to $50.5 per barrel from end-2019 level of $67.31 and $59.88, respectively.

She said crude oil price fell to its lowest level in more than a year amid worries over the potential impact of the COVID-19 outbreak on demand.

“The oil market continues to be whipped by updates on the fast-spreading virus, with some analysts saying that the current demand shock has not been seen since the 2008 financial crisis,” she said.

China is the world’s largest oil importer and the second largest oil consumer, thus a potential slowdown in demand would have a significant impact on prices.

Revillas, however, said it remains to be seen how the Organization of the Petroleum Exporting Countries (OPEC) would react to recent developments.

The peso emerged as the second best performing currency in 2019, gaining 3.7 percent to close at 50.635 to $1 from 50.58 to $1 in 2018.

The local currency continues to trade within the 50 to 51 per $1 range. The last time the peso traded within the 49 to $1 level was way back in 2017.