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Goldman Sachs Further Revise COP Forecasts

COLOMBIA
  • Goldman Sachs have noted that the Colombian Peso has been a clear outperformer over the last month, rallying close to 8% versus the Dollar and has now trumped MXN as the best performing currency year-to-date.
  • With an undervaluation gap not having fully closed yet, if FX fundamentals continue to trend in a positive direction, GS think the Peso can continue to appreciate, especially if interest in EM carry trades remains elevated. On the domestic front, the current account deficit for Q1 narrowed by more than expected and the May inflation print surprised significantly to the downside, pointing to a continued slowdown in sequential inflation.
  • Plus, as President Petro faces a less stable coalition, new legislation is likely to be increasingly negotiated on a case-by-case basis, which should reduce the scope and speed of any potential market-unfriendly reform.
  • With COP continuing to screen as the cheapest of the high carry EM FX and having traded through their previous forecasts, GS revise their USD/COP forecasts lower and now see the cross at 4000, 3900, 3900 in 3-, 6- and 12-months, respectively (from 4400, 4300, 4300 previously).
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