The Dollar vs the Peso Rate

The current exchange rate is a killer if you happen to be buying property with U.S. dollars at the present time. Question is which way is going to move in the next two or three months?

High Against U.S. Dollar

By Helen Murphy

Nov. 9 (Bloomberg) -- Colombia's currency rose to a seven- month high as slowing inflation boosts the appeal of local currency assets, increasing inflows into South America's fourth- largest economy.

The peso rose as much as 0.5 percent. A government report on Nov. 2 showed consumer prices unexpectedly fell last month, pushing annual inflation to a four-month low of 4.19 percent. The central bank targets inflation of 4 percent to 5 percent.

``The peso is perhaps being pushed by overseas demand for local peso bonds,'' said Rupert Stebbings, a trader at Asesores en Valores brokerage in Medellin, which manages about $30 million in Colombian assets. The Colombia government treasury bond ``market offers average volume of over $3 billion -- room enough for everyone to play.''

The peso rose for a third day, adding 0.1 percent to 2,273.90 per dollar at 11:35 a.m. New York time from 2,277.00 late yesterday, boosting its gain since June 30 to 13.2 percent, the best performance against the dollar among the 70 currencies tracked by Bloomberg.

Consumer prices in Colombia fell 0.14 percent in October after a 0.29 percent increase in September. The median forecast in a Bloomberg survey of 16 analysts was for an increase of 0.21 percent.

Rate Outlook

The central bank will likely hold its overnight rate unchanged for the remainder of 2006 as inflation concerns ease, said Juan Pablo Barney, a foreign-exchange trader at Banco de Occidente, in a phone interview from Cali.

``The decent inflation gives optimism there won't be another rate rise this year although there could be another in the first half of next year,'' Barney said.

The bank last week raised the benchmark rate for a fifth time this year to 7.25 percent, the highest since January 2004.

The yield on Colombia's 11 percent benchmark peso bond due July 2020 fell 7.1 basis points to 8.839 percent today, from 8.910 percent yesterday, according to the central bank. The bond's price, which moves inversely to its yield, rose 0.6150 pesos to 116.6930, its highest price since May 11.

``There's a lot of buying from pension funds because of optimism over the economy and expectations that inflation is under control,'' said Barney.

Brazil

Brazil's real strengthened today on expectations declining interest rates in the U.S. next year will help sustain inflows to higher-yielding assets in Latin America's biggest economy.

The outlook for U.S. rate declines may stoke demand for Brazilian assets as the yield advantage relative to U.S. Treasury bonds may narrow less than previously expected, WestLB AG's Flavio Farah said.

``I expect the maintenance of high flows into Brazil due to the yield differential,'' Farah said in an interview in Sao Paulo. ``With the drop of U.S. rates next year, we'll continue to have a benign outlook.''

The real traded at 2.1410 per dollar at 11:36 a.m. New York time from 2.1437 late yesterday. The real has gained 9 percent this year, the third-best performance among the 16 most-traded currencies tracked by Bloomberg.

Prices of goods imported into the U.S. fell twice as much as expected in October, led by a drop in petroleum costs. The 2 percent drop raises the chances U.S. policy makers will cut rates next year, boosting the attractiveness of emerging-market assets, Farah said.

In Brazil, the yield on the one-day loan contract for Jan. 2, 2008, delivery, the most-active contract, fell 0.26 basis point, or 0.0026 percentage point, to 12.940 percent at 11:30 a.m. New York time on Sao Paulo's BM&F commodity and futures exchange.

The dollar futures contract for Dec. 1 settlement, the most-widely traded on the BM&F commodity and futures exchange in Sao Paulo, changed hands at 2.1495 reais per dollar, compared with 2.1544 reais yesterday.

On foreign markets, the yield to the 2015 call date on Brazil's benchmark 11 percent bond due in 2040 rose to 6.187 percent, and the yield to maturity rose to 8.187 percent from 8.183 yesterday, according to JPMorgan Chase & Co. The bond's price, which moves inversely to the yield, fell 0.05 cent on the dollar to 132.05.

Mexico's peso traded little changed at 10.8480 per dollar from 10.8435 late yesterday.

To contact the reporter on this story: Helen Murphy in Bogota at ext. 224 or Hmurphy1 at bloomberg.net .

By elk on Nov 12, 2006, 16:13 in Friendly Talkzone.