Dollar in Colombia: what affects it and forecast for this week

Over the past week the price of dollar hovered above $3,900. At its highest point it reached $3,927, and at its sharpest drop it reached $3,909.

As analysts explain, dollar continues to demonstrate high dependence on the decisions of the US Federal Reserve System (FEED) around interest rates.

It must be remembered that the said central bank has decided to keep them high in the midst of the fight against inflation, since it is believed that most of the costs are due to the imbalance that will exist between supply and demand.

The fact that rates are falling is interpreted as an opportunity for the dollar to lose value against the Colombian peso, as this will increase incentives to allocate resources within the national territory. It is assumed that the more dollars circulate in a country, the cheaper their cost will be.

Read also: Lowering interest rates in the US?: yes, but not so fast

For the head of investment department of Franco Capital Asset Management: Diego FrancoWhat has happened in recent days is a softening of expectations that were specifically regarding the Fed, since it was initially assumed that the first reduction would occur in March, and today expectations indicate that it will be in June.

“Some mixed macro data on jobs, mixed data on retail sales and US inflation have caused some noise, as well as what’s happening with the bonds that have been sold. “These are the main factors that caused currency fluctuations,” the analyst clarifies.

His forecast shows that the dollar price will be between $3,930 and $3,940 this week.

For his part, Casa de Bolsa SCB Director of Analysis and Strategy David Ballen explains that next week is expected to be a transitional one; That is, no major economic indicators will be published that would significantly disrupt the stability of the dollar.

You may be interested in: US inflation expectations fall to lowest level since 2013.

However, he cautions that the next few days could also be relevant as, with Congress back in session, investors will be closely watching the direction health care, labor and pension reforms could take.

In the medium term, according to José Andrés Rueda, a professor in the Department of Economics and Administrative Sciences at American University, the dollar could gain national prominence thanks to the interest of some investors in Colombian fixed income (the position that when lower inflation materializes, yields improve). . This influx of dollars could mean a fall in the dollar.

However, he is concerned about the market’s reaction to the downgrade of the risk rating assigned to the country by S&P, which raised it from stable to negative.

“In the medium term, this could impact investor confidence and reduce FDI (foreign direct investment), which helps the economy earn foreign exchange; Similarly, S&P revised Ecopetrol’s outlook to negative due to a lack of confidence in the company’s mid-term earnings future. The market reaction to this news is expected, the main thing is when the news is established and combined with information about the economic calendar of what is happening in the United States and the potential impact of news about our partner’s economy on the country. – he concludes.

The scientist also believes it is important to be careful about what could happen to Brent oil, since it could be affected by geopolitical events such as those occurring in the Red Sea along with the Palestinian-Israeli conflict. “If important oil players become involved in this conflict, uncertainty could increase, leading to higher oil prices and therefore higher amounts of foreign exchange that the country receives from these exports,” he notes.

Sergio Olarte, chief economist at Scotia Bank Colpatria, said the currency could continue to fluctuate between $3,900 and $4,000 this week.

In his opinion, the timid growth that the Colombian economy has shown will lead to fewer imports, which will require fewer dollars, which could increase the value of the currency in the short term.

In short, there are several variables that could affect the price of the dollar in the coming days. However, this is nothing set in stone, others may arise that will cause it to rise or fall sharply.

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