Colombian Peso Faces Weakening Supportive Mix: TD Securities

The Colombian Peso has been one of the top high-yield performers in recent years, but TD Securities notes that its supportive mix of tight monetary and loose fiscal policy is fading.

Tightening monetary conditions are nearing an end as Banco de la República's (BanRep) hiking cycle comes to a close. Additionally, market expectations suggest fiscal consolidation under De La Espriella will reduce the positive fiscal impulse that has contributed to the peso's strength in recent years.

As a result, TD Securities argues that domestic conditions will increasingly limit USD/COP downside below 3000, leaving the pair more exposed to asymmetric upside risks on risk-off shocks. In fact, the current short and long-term fair values for USD/COP both sit within the 3200-3300 range.