(Bloomberg) Andean currencies were dragged lower on Tuesday amid a sharp decline in commodities, while world markets remained unstable with mixed sentiment across all emerging market currencies. The appeal of South American currencies seems to have faded as investors prepare for greater volatility.
The Colombian peso is once again the worst-performing currency in the world on Tuesday, due to the 6.4% drop in oil, adding to Monday's 5.4% decline. Although the decline in commodity prices helps to ease pressure on global inflation, it also weighs on Colombia's current account outlook, as oil is the country's main export
.The fact that the peso was among the top winners this year until last week as well. may have attracted buyers of dollars eager to close bullish positions, at a time when world markets remain highly volatile due to the war in Ukraine. The Brazilian real and the Chilean peso, which also attracted large flows in the first weeks of the year, have lost steam amid global instability.
Operators are awaiting January retail sales and manufacturing production data in Colombia. While the figures are likely to be considered obsolete, they will help assess the economy's resilience to stricter monetary policy to curb inflationary pressures.
The recent increase in short-term swap rates in Colombia led the curve to discount 5% of additional rate increases over the next six months.
The Chilean peso, for its part, fell by 0.1%, and is on track to retest the 100-day moving average near the 820-per-dollar level, which remains the most important technical indicator for the currency and is likely to attract dollar sellers. Investors in the Chilean peso will be watching a proposal to allow a fifth round of pension withdrawals, which further affected the currency's performance on Monday.
The Peruvian sun, meanwhile, was also affected by negative sentiment among South American currencies. A drop of 0.1% takes it further away from the key level of 3.70 to the dollar and the year-to-date high of 3.6680 to the dollar.
The Peruvian Congress approved the beginning of the process of dismissal of President Pedro Castillo. This is the second time that the president has faced a threat to his mandate in four months. Castillo's defense is scheduled for March 28. Markets have been optimistic about the process, as left-wing parties are considered to have enough votes to block the president's removal from office.
(Some of the information comes from FX traders familiar with the transactions who asked not to be identified because they are not allowed to speak publicly.)
Original Note:
COP Leads Global FX Losses as Oil Prices Sink: Inside Andes
Davison Santana is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended to be investment advice.
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