Colombia Peso's Correlation With Crude Jumps to Four-Month High

  • Currency leads world gains, rebounding from record low
  • Oil rose as much as 7.8 percent before paring gains Thursday

Colombia’s peso is more correlated with oil than at any point in the last four months.

The peso’s 40-day correlation with crude surged to 0.72, the highest since September. The peso gained 2.2 percent to 3,281.78 on Thursday in Bogota, the biggest gain among 31 major currencies. It had reached a record low of 3,426.86 Tuesday. Oil rose as much as 7.8 percent.

Historical volatility in the oil price has risen to the highest level since 2009, while the peso’s dependence on oil increased as crude trades near a 12-year low.

“The relationship tends to get stronger when oil falls than when it recovers,” said Alejandro Cuadrado, head of Latin American currency at Banco Bilbao Vizcaya Argentaria SA in New York. “Typically, there’s a bit of a lag in the recovery.”

Finance Minister Mauricio Cardenas said Tuesday that the Treasury has been selling dollars since December, and the “new normal” will be to continue doing so, which would also lend support to the currency. The government’s dollar sales may deaden the correlation of the currency with crude.

Colombia’s peso was more closely tied to swings in oil prices over the past week than traditional so-called petro currencies such as Russia’s ruble, according to data compiled by Bloomberg.

The peso has lost more than 40 percent in the past 18 months, making it the third-worst performing emerging-market currency, on concern that the current-account deficit was set to balloon given that oil is Colombia’s biggest export.

“This is an economy that has come a long way, but there are still medium-term concerns on the external side with the current-account deficit,” Cuadrado said.

Bank of America Corp. recommended selling the Colombian peso against the Chilean peso on the expectation of a “sharp deceleration” in the Colombian economy. Falling oil prices boost terms of trade in Chile, which imports almost all the oil and gas it consumes.

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