Colombia’s peso rallied to a one- week high on speculation capital inflows from oil and mining companies will rise.
The peso appreciated 0.2 percent to 1,784.76 per U.S. dollar at the close of trading in Bogota, the highest level on a closing basis since Feb. 1.
“Flows continue to come into emerging markets, and oil companies will need to bring dollars into the country as they move ahead with their investment plans,” Wilson Tovar, the head analyst at Acciones y Valores brokerage in Bogota, said in a phone interview.
Colombia’s currency has dropped 1 percent this year as the government and central bank announced increased dollar purchases to stem a rally that sent the peso to a 17-month intraday high on Jan. 2.
“The peso’s decline was overdone,” said Tovar. “It will be difficult to see it weaken beyond 1,800 even with the intervention.”
Banco de la Republica said Jan. 28 that it will buy at least $30 million a day, bringing purchases in the foreign- exchange market to $3 billion between February and May. A stronger peso curbs exporters’ profit margins.
The yield on government securities due in 2024 fell one basis point, or 0.01 percentage point, to 5.09 percent, matching the record low reached Feb. 7, according to the central bank. The price rose 0.064 centavo to 141.744 centavos per peso.
Speculation that the central bank will lower interest rates further means the peso bond rally isn’t over, according to Tovar. Yields on the 2024 securities have fallen 57 basis points this year.
Banco de la Republica, which has reduced the benchmark lending rate by 1.25 percentage points since July to 4 percent, next meets on Feb. 22. Tovar predicts two more rate cuts of 25 basis points each in the February and March meetings.
“The economy needs more stimulus,” Tovar said. “Although these levels are hard to assimilate for traders, the outlook without a doubt is long bonds.”
A long is a bet an asset will gain value. Tovar forecasts the yield on the 2024 bond will fall to 4.65 percent.
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