Peruvian Sol Plunges as Weakness Raises Chance of InterventionSebastian Boyd
Peru’s sol slid to a nine-month low, raising the possibility that the central bank may intervene to strengthen the currency, according to economists at Banco Bilbao Vizcaya Argentaria SA and Nomura Holdings Inc.
The currency slid 0.5 percent to 2.625 per U.S. dollar, the biggest drop since March 6 and the weakest closing level since Aug. 2., according to prices compiled by Datatec.
“You can’t just allow this,” said Benito Berber, a strategist at Nomura in New York. “We’re very close to intervention action. If it moves another 1.5 points they’ll intervene. For a highly dollarized economy this isn’t justified.”
Alejandro Cuadrado, a strategist at BBVA in New York, also said the bank may intervene if the sol continues to weaken.
Technical studies based on trading patterns suggest that the currency’s decline is overdone. The sol has burst through its 20-day upper Bollinger Band at 2.6128 per dollar. The 14-day relative strength indicator reached 78.7, where a value above 70 suggests the sol is oversold.
Currencies of other raw-materials exporters such as Chile, New Zealand and South Africa appreciated today as commodities gained. The Standard & Poor’s GSCI index of 24 raw materials advanced 1.2 percent.
The sol has lost favor with international investors after underperforming regional peers and as the country’s trade surplus has fallen, according to Mario Guerrero, an economist at Scotiabank Peru SAA.
The central bank last intervened to support the sol in May last year, Guerrero said.
Peru’s sol has depreciated 2.8 percent this year after gaining 10 percent in 2011 and 2012, the most among 25 emerging-market currencies tracked by Bloomberg.
“There is a shortage of dollars onshore,” said Eamon Aghdasi, a strategist at Societe Generale SA in New York. “Between the central bank buying dollars and raising reserve requirements for banks, they have removed enough dollars from the economy that there’s something of a squeeze.”