USD/COP: Limited enthusiasm for the peso to drag the pair to 3600 by year-end – CIBC

Economists across the board have revised the Colombian GDP lower. Luis Hurtado, an analyst at CIBC Capital Markets, forecast the USD/COP pair trading with high volatility and at the 3600 level by the end of the year.

Key quotes

“Average GDP estimates now sit at roughly -4%, a significant deterioration from the -2% predicted last month, and the initial +3% expected for this year.”

“We expect the CB to continue easing and cut the overnight rate by 50bps before the end of Q2. Although the timing of the opening and recovery of the economy makes it extremely difficult to assess the end-point of the easing cycle, we do not discount that the overnight rate could end up between 2.25%-2.75% by year-end.”

“Following the sharp drop in oil prices over the last two months, we expect short-term USD/COP volatility to remain high, as fiscal and external account concerns persist. Nevertheless, we maintain our strategic view of a USD/COP at 3800 by the end of Q2, and at 3600 by year-end.” 

“A ceiling for USD/COP appears to have formed in the 4100-4200 range, even following the stream of negative news hitting the Colombian economy over the past month.”