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Substantial Pressure On Local Assets, Wells Fargo Say Overdone

COLOMBIA
  • The Colombian peso has fallen over 2.5% against the greenback on Thursday following President Petro’s announcement to reshuffle his cabinet. Furthermore, the local IBR swaps curve has seen another shift higher, with the most pressure seen in the long-end with 10-yr swap rates currently 43 basis points higher on the day.
  • While analysts have all noted the inevitable increase in political uncertainty, Wells Fargo have stated that the most recent moves are overdone and the Peso now has room to rebound as political and fiscal fears subside.
    • Strategists have noted that the incoming Finance Chief is “a technocrat with a track record of implementing sound fiscal policy as Bogota’s Finance Minister”.
    • Wells Fargo expect the USDCOP rate to end Q2 at 4,500 per US dollar and reach 4,400 by year-end and believe the best way to express the optimistic view is by shorting the Chilean Peso against the COP.
    • Despite the expectations for a greater sense of calm, strategists do note that recent events and the inflation scenario make a 25 basis-point rate hike more likely at Friday’s policy meeting.
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