The Colombian peso nudged a slight gain against the dollar Monday, extending a trend that has seen the Colombian currency strengthen against the dollar in recent days.
The peso closed at COP1,817 to the dollar from COP1,817.75 Friday, according to central bank data. It was the 9th straight session that the peso strengthened against the dollar, a tendency that could continue in the coming days.
Alianza Valores, a Bogota-based brokerage firm, said in a research note Monday that the exchange rate could dip below the COP1,800 level in the first half of the year.
A surge in exports in February, when they increased 37% from a year ago to reach $3.9 billion, is set to carry on thanks to high prices for oil and coal, Colombia’s top exports. That is likely to continue fueling Colombia’s economy but will also represent a strong exchange rate, said RBS Securities in a research note.
Colombia had been dogged by a strong peso, with exporters and trade unions in the past ramping up pressure on the government when the exchange rate nears the COP1,750 mark. The peso’s strength has been fueled in large part by foreign investment into Colombia’s commodities-rich economy.
The central bank and the government, however, have avoided placing controls on foreign investment to curb the peso’s strength. Instead, the central bank has resorted to buying dollars in the spot market to the tune of $20 million daily to mop up U.S. currency, a move which also allows the monetary authority to build up its international reserves. “Colombia should continue to intervene in the market in an opportunistic way,” RBS said in a research note.
Adding to the inflows of foreign investment, other factors are also pressuring the exchange rate. Colombia’s foreign debt was raised to investment-grade last month by Standard & Poor’s rating agency, opening the door for the institutional investors that have restrictions on investing in anything but investment-grade instruments.
The central bank also began raising interest rates in February, a move that could generate more portfolio investments into Colombia and lead to a stronger peso against the dollar.