(Bloomberg) The Peruvian sun lagged behind other South American currencies after S&P downgraded the country's debt rating on Friday night, citing political instability. The Chilean peso rose despite a further increase in oil prices, while Colombian markets are closed due to a local holiday.
The sun retraced 0.6% to 3.80 per dollar, moving away from the year-to-date high close to 3.66 to the dollar.
S&P downgraded Peru's long-term foreign currency debt rating from BBB+ to BBB, the second lowest investment grade rating. According to the rating agency, persistent political stagnation is undermining efforts to maintain investor confidence and is restricting growth prospects. The outlook remained stable as S&P expects sustained fiscal efforts to bring debt below 30% of GDP.
Higher commodity prices continue to pose risks to global inflation, fueling expectations that regional central banks will maintain their restrictive tone; oil rose 6% on Monday, as the war in Ukraine approached a month without a conclusion in sight. Russia's key role as a fertilizer exporter is affecting agricultural commodities such as wheat, corn and soybeans.
The Chilean peso advanced 0.8 per cent because, apparently, it benefited from new inflows of dollars, and it mimicked the dynamics of the Brazilian real, despite the fact that Chile is a net importer of oil.
The Chilean currency crossed the 800-to-dollar level and is also testing its 200-day moving average, which has been acting as a strong support for the dollar since mid-February.
Copper does not help explain the peso's performance, as red metal fell 0.5% on Monday, reinforcing the view that there is an inflow of dollars into South American currencies.
Colombia's local markets are closed due to a national holiday. The local currency could record some kind of recovery tomorrow after the movement of its peers and the oil rally.
(Some of the information comes from FX traders familiar with the transactions who asked not to be identified because they are not allowed to speak publicly.)
Original Note:
Peru Lags EM Peers on Rating Cut While CLP Rallies: Inside Andes
Davison Santana is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended to be investment advice.
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