Exchange rate: will the dollar break the S/4.00 barrier again?

To understand why the price of the dollar continues to change, it must be remembered that this year will be a kind of electoral year due to the possible presidential elections in 2023 or 2024. In this sense, the noise of those who are shaping up to win the presidency generates volatility in the foreign currency exchange rate. According to analysts, the range for 2023 should be between S/3.75 and S/4.00 if the situation in Peru remains calm or is regulated.

“Any local risk factor will weaken the Peruvian currency, increasing the demand for the dollar and generating the current appreciation. In the last 27 months, we suffered a capital flight of more than S/17 million due to the crisis, this variable negatively affects the exchange rate generating an appreciation of the dollar of 1.85% against the sol, trading at S/3.88”, observed Washington López, CEO of Washington Capital.

It is important to remember that around October 2022, the dollar reached its highest point in the last 20 years globally and has been on a downward trend ever since. This decrease is due to the fact that inflation in the United States has begun to subside, the expectations of aggressiveness or interest rate rises by the Federal Reserve (Fed) were regulated.

“We are around S/3.83. As long as the regulation of the Minimum Pension Law is not very aggressive and the protests cease, we could see an exchange rate approaching S/3.75. If, on the contrary, social conflict continues and the law is not regulated, we could go up to S/3.90 and head towards S/4.00,” explained Javier Gamboa, manager of financial life insurance and pensions at Rímac.

In a similar vein, López projects that the dollar will continue to strengthen against the sun and the main emerging currencies in 2023. “We conclude that the dollar has enough room to return to the maximum of S/4.14 reached in 2021 and even make a new additional maximum in the area of ​​S/4.30 or S/4.35 after the economic weakening that has caused the social situation and the continuity in the rise in interest rates by the Federal Reserve,” he added.

Last December, the start of social unrest caused discomfort to foreign investors, who bought dollars and pushed the exchange rate upwards. “In addition, the publication of the Minimum Pension Law caused investors to sell assets in soles, that is, their Peruvian assets such as sovereign bonds, causing the exchange rate, last Wednesday, to reach almost S/3.90” Gamboa added.

defensive position

The prospects for a good performance of the Peruvian economy and stock market this year are a coin in the air. On the other hand, the recovery of commodities, Copper’s growth of 17% in recent months and gold at US$1,900 balances the negative scenario and maintains positive prices towards the stock market and the exchange rate.

Lopez, of Washington Capital, recommended maintain a defensive position in 2023 so as not to be exposed to the volatility of the exchange rate or equities“dollarizing their surpluses or investment portfolios, investing in metals and/or safe-haven assets, such as gold, may be the ideal path.”

investment alternatives

Renato Peñaflor, professor of Economics and Business at the USIL Graduate School, explained that there are alternatives for those who do not want to be exposed to local instability. “Investing abroad is an alternative for those who have the funds and do not have urgent needs or obligations in the short term“, said.

For his part, Gonzalo García Arboccó, commercial director of MFX Prime, mentioned that an alternative with zero risk and returns ranging between 7% and 9% are structured notes.

“Traditionally, the dollar has functioned as a refuge asset in volatile situations. Today, many Peruvians already invest from US$20,000 in structured notes, an investment product in the United States made up of bonds indexed to inflation and rate increases with terms ranging from one to five years,” he said. It should be remembered that the entry ticket to access this investment instrument is US$20,000.