This 2023 began with a strong volatility of the price of the dollar in Colombia. The first weeks of January presented a significant rise in its value to, in the last days, record a significant fall.
(Read: Dollar lost 83 pesos in the week and remains below $4,600).
In the last week he lost 83 pesos and currently stands at an average price of $4,548. It should be remembered that during 2022 the foreign currency reached all-time highs that exceeded 5,200 pesos.
What explains the volatility of the dollar
When the dollar fell below the 4,700 range, what is called support was broken. “lor what was that support becomes a resistance. With this drop, a new support is put together again around 4,400“, explains Jeisson Balaguera, economist and CEO of Values AAA.
In summary, the currency now has new support levels and new resistance levels.
This volatility is being determined, for the most part, by international factors. “The volatility can be justified by the inflow of foreign capital flows due to the current situation in terms of interest rates and external factors resulting from the increase in oil prices that have generated a greater inflow of dollars into the country, causing the decrease in the exchange rate,” says Heiller Andrés Lanziano, a professor in the Finance program at Universidad El Bosque.
“The dollar is falling because the inflation data in the United States is favorable and interest rates are expected to start falling soon. That implies that there are more dollars in the market and the price decreases.“, points out Balaguera.
(In addition: Ecopetrol shares fell 3.19% after the announcement of the removal of its president).
Likewise, Lanziano recognizes that the sociopolitical situation of Colombia in terms of governance, reforms and the departure of Felipe Bayón as president of Ecopetrolhave fostered an environment of instability that promotes corrections to this downward trend.
What’s next in the coming weeks?
“The behavior of the dollar in the coming weeks will depend on inflation in the United States and interest rates. If the United States enters into a process of reducing its interest rates, that will cause the dollar to reach support at 4,400 pesos and remain above those ranges.“, estimates Balaguera.
For his part, Lanziano believes that the current trend is likely to continue for at least one or two more weeks, taking into account account the increase in interest rates of Banco de la República of 75 bps.
“Which can stop the outflow of foreign capital considering that it is estimated that there will be no rate hike by the Federal Reserve. However, factors such as the price of oil, the discussion on labor reform and the management of inflation can generate corrections in the trend and return to levels of $4,600 in the coming days,” he points out.
(See: ‘Hunger wages’: that’s how it is to earn in bolivars but live in dollars).
Will the dollar return to 4,000 pesos?
“The technical probability of a dollar at 4,000 pesos is less than that it remains in the ranges of 4,700 to 5,200. The trend is more likely to be up“, explains Balaguera.
Although the Colombian peso has been one of the strongest currencies during the year in the region,There is still uncertainty regarding the country’s economic outlook for this yearLanziano explains.
“That makes us think that we will still remain at levels above $4,400 at least for this year and already depending on the effectiveness of the reforms, the management of monetary policy and external factors such as the price of oil and the conflict between Russia and Ukraine, makes us anticipate that for the medium and long term we will not have a rate close to $4,000”, he points out.
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