The price of the dollar is deflating to the misfortune of some and the joy of others, and unless there is a sharp drop in the global economy, that the central bank of the United States, the federal Reserve (fed), raise its interest rates again and if, internally, the Government does not moderate its position to reduce uncertainty in the markets, the US currency will hold at current levels or perhaps lower, but still amid much volatility.
(Also read: Dollar in Colombia ends the week with a drop and above levels of 3,971 pesos)
This is what market analysts are seeing, considering that these possibilities are remote since the circumstances of the global and local economy have changed and the uncertainty that existed in the recent past about its evolution has been dissipating, which has caused the dollar to lose strength globally.
In fact, those consulted maintain that in Colombia the US currency is still trading between 300 and 400 pesos above its fair value, with which there is room for its price to fall further.
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Own Finance Minister Ricardo BonillaEL TIEMPO told him that the exchange rate is reaching pre-pandemic levels and that the markets are understanding that the Government is making a fiscal adjustment.
“I think we are stabilizing. The country cannot stand a revaluation… The country is not interested in a higher revaluation”, the minister told Yamid Amat, without committing himself to fixing a specific exchange rate that he wants to reach.
After having reached a historical maximum of 5,061.21 pesos, on November 6 of last year, in the midst of economic uncertainty and some announcements from the new government that caused a lot of noise in the market, such as the end of new contracts for gas and oil exploration, as well as the announcement of the presentation of social reforms, the course of the US currency in the Colombian market took another direction and today it is already trading at 3,971.38 pesos, which is the official rate that governs for this weekend and tomorrow Monday.
This performance today makes the Colombian peso the most revalued currency in the world so far this year. Until Friday of the previous week, its recovery against the dollar had been close to 17.5 percent, 4.6 percentage points above the Mexican peso, the second currency in that world ranking of those that continued to cut the advantage of the strongest currency on the planet.
The recovery of the Colombian peso has been significant. Nearly 1,090 pesos if the historical maximum of last November is taken into account; about 839 pesos so far in 2023 and 118 pesos only this week.
This devaluation trend of the dollar and the appreciation of the emerging currencies could be reversed if there were a sharp drop in global economic activity.
Undoubtedly, the Colombian economic panorama from the perspective of investors has changed and that makes the country one of the largest recipients of foreign currency these days, which helps to push its cost down, they warn, while calling attention to other signs, both local and international, that may occur in the remainder of this year and that would accentuate or not the current course of the currency.
Andrés Langebaek, director of Economic Studies at Grupo Bolívar, believes that the revaluation of the peso, as well as that of most emerging currencies, is the result of the devaluation of the dollar globally, which in turn is associated with analysts’ conviction that after the Fed’s rate increase —which we will see next week— there will be no further increases for a long time.
In his opinion, this devaluation trend of the dollar and the appreciation of emerging currencies could be reversed if there were a sharp drop in global economic activity, which could trigger a flight to quality, that is, investors’ search for safe investments (United States treasury bonds) that could put pressure on the value of the currency. However, he considers that this scenario is not very likely.
“The dollar in the world has been very unstable in the last year and I think that will continue. This being the case, we are going to see a lot of volatility in the peso in the coming months,” insists the economist.
More downward pressure
There is a consensus among analysts that internally there are two factors that are pushing the dollar down hard.
Juan David Ballén, Director of Analysis and Strategy at Casa de Bolsa, explains that the dollar in Latin America is still very weak and, in the case of Colombia, it continues trading with a penalty of between 300 and 400 pesos over its fair price and it will continue like this, in addition to the external reasons exposed, because If the Government continues to moderate its position, this will help to reduce uncertainty in the markets and continue closing the penalty with which the dollar is traded.
«Given these conditions, we believe that the dollar has reached a ceiling in the country, and could remain in a range of between 3,700 and 4,300 pesos between now and next year,» the analyst says.
The new bets
In Grupo Alianza they see it at 4,000 pesos; at Banco de Bogotá, at 4,100 pesos; in Corficolombiana, over 4,200 pesos; Grupo Bolívar analysts see it at 4,250; in Credicorp Capital and Itaú, at 4,400 pesos, while in Bancolombia, at 4,350 pesos.
Precisely, in the Bancolombia Group they explain that in recent months there have been new signs of strength in the local economic and political institutions, which would have explained part of the improvement in the perception of country-risk.
And they add: «In the current scenario, it is foreseeable that the process of the key reforms (labour, labor and health) will allow reaching a final version in which social objectives are achieved with a limited macroeconomic impact»and this has been evidenced in an improvement in the perception of country-risk, measured through indices such as the Embi, which would favor the appetite for local assets.
«This dynamic was largely explained by a less challenging global financial context than in the first quarter, which has allowed for an environment of greater global appetite for risk,» they state at the bank, adding that to this is added the signs of the start of a partial correction of macroeconomic imbalances that would be helping a greater appetite for local assets (dollar inflows into the economy).
One of the reasons that have moved the dollar down is that the central bank of the United States, the Federal Reserve (Fed), is already reaching the limit of increasing its interest rates.
Factor in which the economists of the Brazilian Banco Itaú agree. They point out that market expectations of a more moderate path of structural reforms and high interest rates are driving the strengthening of the peso. «We revised our forecast for the end of the year to 4,400 pesos per dollar (10 percent appreciation compared to our previous scenario).»
Here also comes into play the fact that an increasing volume of remittances continues to enter the country. At Grupo Alianza, they expect these to reach 9.9 billion dollars in 2023, and add that the evolution of the peso depends a lot on the direction of the dollar in the world and it weakens.
There is no doubt about it, although both international and local circumstances today are different from a year ago.
José Ignacio López, director of Economic Research at Corficolombiana, points out that one of the reasons that has pushed the dollar down is that the United States central bank, the Federal Reserve (Fed), is already reaching the limit of increasing its interest rates.
Meanwhile, Felipe Campos, manager of Grupo Alianza, assures that the dollar is falling faster in 2023 because last year «Investors were uncertain about a country that could have many structural changes.»
ECONOMY AND BUSINESS