Colombia starts 2023 with one of the strongest currencies in the world: will it last?

Although the dollar in Colombia just started in January touched $5,000 again, this Thursday the currency was quoted at $4,675, its lowest level since October 2022.

Despite the volatility, the Colombian peso is one of the strongest currencies in the world so far in 2023, however, victory should not be claimed.

According to Bloomberg data, so far in January, Colombia is the fifth best-performing currency against the dollar with an appreciation of 3.57%.

In regional terms, Colombia has the third best currency, after the Brazilian real (4.90%) and the Chilean peso (3.99%).

The strength of currencies such as the Colombian peso against the dollar occurred this Thursday after it became known that US inflation had cooled in December, giving the Fed room to slow down the rise in interest rates, which it takes some of the external pressures off the world economy.

In addition, we must not forget that crude oil prices rebounded this Thursday above US$80 per barrel, which benefits oil-exporting countries such as Colombia.

As explained by Juan David Ballén, director of analysis and strategy at Casa de Bolsa, “the rise that the dollar had in the first days of the year could have been explained by the low liquidity given the year-end season, however, the trading volume has already been recovering and this has allowed the dollar to adjust a little more to its real level, since the dollar had been falling throughout the region except in Colombia”.

Regarding whether or not the strength of the Colombian peso against the US dollar will last long, experts say that it is not very clear to establish for now, since further details of how the global recession progresses and how much appetite for the greenback continues to increase, which would take its toll on the Colombian peso and other risky currencies.

“We are beginning to get a little more into the history of the region with solid raw materials in a scenario far from the war in Europe, where we see ourselves favored in a context of global uncertainty that continues to demand raw materials,” explained David Cubides, director of economic investigations of Alianza Valores.

The foregoing, according to Cubides, “should help us to begin to converge to the fundamentals that speak of economic soundness, robust growth and recent messages from the Government of fiscal commitment that in the medium term should make us converge to higher exchange rate levels and towards the end of the year reach a range between $4,400 and $4,500 per dollar”.

From the point of view of Juan David Ballén, although the dollar has been breaking downward levels, “$4,600 or $4,550 are on the table. Let’s see if it stabilizes and starts to bounce again. Now it is weakening, but once it touches those support levels and the market will say how far it can go, after that it would bounce because the Fed will follow its rates in the coming months and this year is a recession”.

HOW DOES 2023 LOOK FOR THE DOLLAR IN COLOMBIA?

Although the dollar is trading downward these days in the country, it could fluctuate between $4,500 and $5,500 during the year, according to experts consulted by Bloomberg Línea.

For Ana Vera, chief economist at IN ON Capital, who believes that the dollar could be between $4,500 and $5,500 in 2023, “greater devaluation is expected, since globally there will be a slowdown in economic growth and a drop in commodity prices premiums, which would imply that the country receives fewer dollars from remittances and oil exploitation”.

For Diego Gómez, Corficolombiana’s external context and exchange market analyst, in 2023 the dollar could oscillate between $4,600 and $5,200 in a baseline scenario, which contemplates high volatility in the first half of the year, “taking into account in the first place that there are There is enough room for interest rates to continue rising in the US, because although the inflation data that shows a downward trend is welcome, there is still a lack of ground to see that there is a consolidation in this trend”.

With information from Bloomberg