Colombia and Chile under pressure

The Colombian Central Bank announced today that it would begin buying 20 million dollars per day in an effort to ease the currency appreciation which has been going on. Initially it has worked. The currency has weakened from 1670.00 on Friday to a closing level of 1722.00. This is a similar move to what Chile did a few months back when they announced a plan to purchase 50 million dollars per day.

Banco de la Republica will buy the U.S. dollar through competitive auctions, the bank said in a statement late June 20. The purchases replace the $150 million in dollar put options the bank sold monthly. Policy makers also said they ``unanimously'' decided to leave the key lending rate unchanged at 9.75 percent, matching the forecast of 23 of 39 economists surveyed by Bloomberg.

Judging from the reaction of the market, I would approach and shorts carefully. The similar plan in Chile stopped the appreciation and has certainly put pressure on the currency in recent weeks. The market was definitely short dollars against Colombia and I think people will be looking for the exit (as many have today already) in the days to come.

As a follow-up to yesterday’s Argentinean post, Congress has decided to debate the Farm export taxes which was instituded back in March.

``The only solution I see is the repeal of the tax and the debate in Congress of the best tax system for the good of the nation and the sectors involved,'' said Oscar Aguad, a congressman from the opposition Radical Civic Union in a telephone interview. ``If there's no solution soon, the economy will start cooling off and unemployment will start to rise.''

This has been taken well although cautiously. The spot drifted lower from 3.0550 to 3.0150, but is now closing at 3.0200. The rest of the curve is quite well supported as we have heard these stories before and I think the market wants to see concrete evidence of a change before reacting. If spot stays here or trades lower I believe that the curve will trade lower as it is to expensive to stay long dollars. I would not be surprised to see spot break 3.00 in the days to comes as the market “tests” this level.


Good Luck and Good Currency Trading.