Latin American currencies, favorable balance against the dollar but with caution

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The rise in raw materials and the international situation have favored the revaluation of currencies in Latin America in 2022, a region where the wind is blowing in favor against the dollar and that is managing to reverse the trend of the previous year, where the currencies of Argentina, Chile, Colombia and Peru were among the most devalued against the greenback.

Last year, the Argentine peso ranked second in devaluation (20.5%) in the world, followed by the Chilean peso (18.7%), the Colombian peso (17%) and the Peruvian sol (11 .9%).

But in the first quarter of 2022, Latin American currencies regain momentum, encouraged by rising commodity prices, rising interest rates and monetary behavior.

What attracts new investors looking for safer places to invest, at a time when Russia’s invasion of Ukraine darkens Europe but makes Latin America shine.

“There is still ample global liquidity” looking for a place to invest. The region “remains an attractive focus of value,” Alejandro Reyes, chief economist at BBVA Research Colombia, explained to Efe.

However, experts consider that there is a lot of volatility and the possibility that Latin American currencies will depreciate again.

THE REAL, IN POSITIVE TREND

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The Brazilian real was the second currency in the world, only behind the Russian ruble, which rose the most against the dollar last March, 7.69%, according to a report obtained by Efe from the Financial Information Platform of the Economatica consultancy. .

So far this year, the greenback has plummeted 16% and is sold below 5 reais at the commercial exchange rate.

This rebound is due to the high base interest rate (currently 11.75% per annum), the rise in iron and crude oil prices, the withdrawal of assets from investors in Russia and the injection of foreign capital.

Although economists opt for caution ahead of the presidential elections next October, they point out that the Brazilian foreign exchange market should continue to trend positively.

“Monetary control in Brazil began much earlier than in other parts of the world. Interest rates rose faster than other countries,” Flavio Serrano, chief economist at the Greenbay investment agency, told Efe.

PERUVIAN PESO TAKES ADVANTAGE

The dollar exchange rate in Peru began April at 3.63 soles, the best since April 16, 2021, when it was at the same price.

After the dollar exceeded 4 soles after the election of Pedro Castillo, the local currency has had an increase of 2.74% in the last 12 months and 8.68% in the accumulated variation of 2022, according to the Official figures from the Central Reserve Bank of Peru (BCRP).

To date, the BCRP has made spot sales at trading desks for 371 million dollars and has auctioned foreign exchange instruments (foreign exchange swaps for sale and BCRP Adjustable Certificates of Deposit) for amounts less than their due dates. For this reason, the balance of these operations decreased by 498 million dollars.

Although political instability may put the country at risk, after the recent protests and the Castillo situation.

THE CHILEAN CURRENCY, STRENGTHENED

The Chilean peso is also strengthened, in part, by the high prices of copper, of which the country is the world’s leading producer, and the high national interest rate, which the Central Bank recently raised from 5.5% to 7%, according to experts.

That the interest rate of Chileans is much higher than the average benefits them because it attracts “capital flows that seek a higher return than in the United States and Europe,” Francisco Castañeda, from the University of Santiago de Chile, told Efe.

The dollar reached its all-time high in Chile on December 20 of last year, one day after the electoral victory of the leftist Gabriel Boric, when it reached 876 Chilean pesos, but it has been falling progressively and every day it moves further away from the barrier of the 800 pesos.

THE REVALUATION OF THE COLOMBIAN PESO

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Since last March, the price of the dollar in Colombia has been in decline. On April 4, it had its lowest value in the last six months when it was traded at 3,706 pesos per dollar, and so far this year the revaluation of the Colombian peso is 6.89%.

“The great trigger” for the Colombian peso to recover ground was the rise in the prices of raw materials, which “started a little before even the conflict between Russia and Ukraine, due to a rapid recovery in demand after the shock of the omicron,” Reyes said.

As oil and coal are Colombia’s main export products, the country will “have more dollars in the economy” due to the rise in the prices of these two raw materials, the Scotiabank Colpatria economic team pointed out in its weekly analysis .

However, this trend will continue but in the short term, Reyes predicted, due to the presidential electoral cycle of next May 29 with a possible second round on June 19, depending on the proposals of the candidates.

THE MEXICAN PESO ADVANCES SIGNIFICANTLY

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The Mexican peso is in fifth position in appreciation against the dollar, behind the Brazilian real, the Peruvian sol, the Chilean peso and the Colombian peso, according to what the director of economic analysis of Banco Base, Gabriela Siller, told Efe.

A reflection of the significant advance it had in the first quarter of the year, since it closed with an appreciation of 3.21% or 65.9 cents, trading around 19.87 pesos per dollar.

“A great deal of foreign currency has entered Mexico through exports and remittances,” Siller explained, due to the “free-floating” exchange rate regime, which depends on the interaction of supply and demand.

The analyst highlighted that exports are expected to grow between 7% and 10% this year, driven by growth in the United States, while remittances could show growth between 10% and 13%.

RAW MATERIALS, KEY FOR URUGUAY

The Uruguayan peso appreciated 7.24% in the first quarter of 2022 against the dollar, which went from 45.90 to 42.40 pesos, due to the rise in the prices of raw materials and inflationary pressures, he told Efe Jorge Xavier, dean of the Faculty of Economic Sciences and Administration of the University of the Republic.

The dollar suffered “a very strong fall in a very short period,” he added, explaining that they are the “commodity markets in which Uruguay dumps a large part of its exportable balances.”

On the other hand, when asked about the possibility that the rate differential between the Uruguayan peso and the dollar is another factor that affects this situation, due to its impact on investment decisions, the Central Bank explains that this does not seem to be decisive in this moment.

“EXCHANGE PEACE” IN ARGENTINA

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Two scenarios are presented in Argentina. On the one hand, the peso has accelerated its rate of depreciation against the dollar in the official exchange market, in line with the strategy agreed with the International Monetary Fund, and on the other, the price of the US currency has dropped in the markets. alternatives.

The price of the dollar in the official wholesale market, a market where the Central Bank intervenes, closed the third month of the year at 111.01 pesos per unit and accumulated an increase of 3.31% in March and 8.07% in the first quarter of the year.
Meanwhile, the value of the US currency for sale to the public in banks and exchange houses – where operations have a monthly quota of 200 dollars per person and taxed at a rate of 30% – closed March at 116 pesos per unit.

According to the analysts consulted, a certain “exchange peace” is in sight in the coming months, given a higher income of dollars due to the liquidation of exports of the grain harvest and if the rate of devaluation of the official exchange rate of March, which would help narrow the gap with the alternative prices.

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