Colombian Peso Holds at Two-Week High as Fed Extends Stimulus
The peso was little changed today at 1,770.35 per dollar, the strongest level on a closing basis since June 7. It has gained 9.5 percent this year, the best performance among all of the 170 currencies tracked by Bloomberg.
The Fed will extend its program to replace its holdings of short-term bonds with longer-term debt through the end of the year as policy makers lowered their outlook for growth and employment. The program, known as Operation Twist, was set to expire this month.
“The Fed announced Operation Twist as expected,” said Juan Camilo Santana, an analyst at Cia. de Profesionales de Bolsa SA brokerage in Bogota. “People will now focus their attention back to Europe.”
Euro-area leaders at the Group of 20 summit in Mexico yesterday pledged to take “all necessary policy measures” to defend the currency union as world leaders endorsed a road map for tighter integration to cut borrowing costs and prevent further damage to the global economy. European Union leaders will hold a summit in Brussels on June 28-29.
Colombia’s peso will trade near 1,775 per U.S. dollar this year as the nation’s trade surplus supports the currency’s outperformance among peers, Barclays Capital Inc. said.
“As long as the oil price (Brent) remains at least close to $100 per barrel, it is likely to remain supportive of the trade surplus,” Barclays Latin America analysts Alejandro Arreaza and Alejandro Grisanti wrote in a report today. “Capital flows are expected to remain relatively stable, supported mainly by foreign direct investment in the commodities sector.”
The peso will strengthen toward 1,750 next year, the analysts wrote.
Should global conditions improve, pushing gains in the Colombian currency, “appreciation pressures will be contained by intervention,” Arreaza and Grisanti wrote.
Colombia has been less successful than other countries in the region at curbing currency gains, Echeverry told lawmakers last week. More central bank intervention in currency markets is compatible with low and stable inflation, he said.
Central bank chief Jose Dario Uribe said in an interview last week that Colombia wants a weaker exchange rate and that policy makers won’t rule out bigger dollar purchases. The bank’s next monetary policy meeting is scheduled for June 29.
Banco de la Republica has said it will buy a minimum of $20 million daily in the spot market until at least Nov. 2, while the government is keeping abroad dividends from state-run oil company Ecopetrol SA to avoid strengthening the peso.
The yield on Colombia’s 10 percent peso-denominated debt due in July 2024 fell two basis points, or 0.02 percentage point, to 7.04 percent, according to the central bank.
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