Forecasting the behavior of the Colombian Peso vs the American dollar in the long run is one of the most challenging task an analyst may get involved into as there are a wide range of local and external variables that may influence its behavior.
Nonetheless, most of the time, short term forecasting is not as hard as it may seem because of the high correlation the Colombian peso has with both the Brazilian Real and the SP500, the most important U.S. index. Minor deviations occur when policy makers interfere the currency by buying dollars in the spot market or through options to counter volatility.
Basically, the movements of the local currency are not up to itself but up to the movements of the global markets. However, this high correlation with global forces seems gone away lately as the Colombian Peso defies its own rationale.
There is an ample consensus that the Colombian peso will strengthen as the improvement of the external markets will increase the risk aversion of investors who will continue demanding emerging currencies.
Most of the global analysts who follow the Colombian peso expect the local currency to end the year around $1,850 per unit of dollar. Among them, renowned Alberto Bernal of Bulltick Research as well as Wells Fargo, JP Morgan and Standard Chartered. On the other hand, consensus among local analysts is a little bit wider as the expectations range from low estimates around $1,800 to over $2,250, with most of them expecting it to be below the $2.000 level by the end of the year.
These projections are mainly based upon the premise the world and local economies have already bottomed from the worst recession around the globe since the 1930´s. If the premise stands in the next few months, the Colombia peso may strengthen to the low´s 1700 and highs 1600 as the inflows of money will outpace the demand for the local currency.
However, if the situation in the global markets starts to worsen, the outlook of the Colombian Peso may sharply change, as there are local variables that may propel the devaluation of the local currency such as presidential elections next year, the current twin deficits of the economy, the precarious fiscal budget, the fall of Colombian exports to Venezuela and a possible weakening of the economy.
Therefore, how these scenarios play out in the next weeks, or perhaps days, will pave the way for the medium and long term outlook of the Colombian peso.
Author Luis J. Rodríguez is CEO of e-Bursatil.com.co, a website focused on Colombia’s financial market