Colombian Peso Leads Losses in Emerging Markets as Oil Tumbles

  • OPEC lifts output target to 31.5 million bpd from 30 million
  • Oil represents about 40 percent of Colombia's exports

Colombia’s peso fell the most in emerging markets after OPEC said it will keep pumping oil at current levels, dimming the outlook for the nation’s main source of export revenue.

The currency fell 1.8 percent against the dollar to 3,201.91 per dollar at the close in Bogota, the lowest since August. The peso has lost 11 percent in the past month, the worst performance in emerging markets.

Oil approached a three-month low after the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of world oil production, raised its output target to 31.5 million barrels a day from a previous target of 30 million barrels. OPEC has pumped more than its collective target of 30 million barrels a day the past 18 months and pumped about 31.4 million barrels a day in October.

One-month implied volatility in the peso has risen 2.7 percentage points in the past month, more than any other currency in the world, amid concerns that the South American nation’s budget deficit will widen beyond the government’s target on falling oil revenue.

“Investors’ biggest concern regarding Colombia is its fiscal deterioration,” Daniel Velandia, head analyst at Credicorp Capital’s Colombia unit, said from Bogota. “There isn’t a catalyst for now that would help the peso revert its declining trend.”

Bets that the U.S. Federal Reserve will raise interest rates this month are also pressuring the currency, Velandia said. He forecasts the currency could weaken to as low as 3,400 per dollar should oil fall to $30 a barrel. It traded Friday at $40.11.

Colombian President Juan Manuel Santos said today in a speech after the market was closed that the peso is currently at or weaker than its equilibrium level after years of being overvalued.

The central bank sells call options to limit foreign-exchange volatility when the peso is 7 percent or more weaker than its 20-day moving average. The measure hasn’t been applied since announced in October.

Before it's here, it's on the Bloomberg Terminal.