Columbian Peso May Rebound from the Biggest Depreciation

Columbian Peso, the major currency of Columbia is expected to rebound from the biggest tumble that it experienced within a year. The policy makers of this Latin American country are considering whether they should extend a Dollar purchase program or not. Incidentally, the program, according to the original schedule, should end on this month itself.

The 14-day relative strength index of the exchange rate has increased to 83.3 on yesterday, marking its highest value since September, 2011. Columbian Peso, on the other hand, has tumbled by 3.1% against USD in the last 2 weeks, marking the biggest decline within the major Latin American currencies. Incidentally, any value above 70 for the relative strength index denotes that the same is all set to experience an imminent reversal. On yesterday, for the first time in 16 months, it broke through 1,900 per USD, thereby, prompting the Finance Minister Mauricio Cardenas to announce that the decline is a great achievement for the policy makers.

The Central Bank of Columbia has bought at least $30 million of the USDs in a single day since 28th June, thereby helping the currency to weaken by 6.2%. Apart from that, the bank sold 8 trillion Columbian Peso of the 10 trillion Columbian Peso allowance of the bonds in an attempt to mop up additional local currency. The Dollar purchase program is all set to end on 31st May and then it will be decision of the policy makers that whether the same should be extended, reduced or halted permanently.

According to the Chief Economist of Banco de Bogota, the 2nd biggest bank of Columbia, Camilo Perez, if the program is not extended or extended for a little time frame, the Columbian Peso should experience some correction to its current move that it had in the last few days. The probability of not extending is high though and that’s the most reasonable thing to do at this point of time. The technical analysis of the market also suggests that the same is at a vulnerable state at this point of time.

The policy makers of Columbia, under current scenario, can only sell 2 trillion Columbian Pesos more in an attempt to sterilize the intervention. On the other hand, the Columbian Peso is already below the mark mentioned by the bank when it started the Dollar purchase program in January.