He dollar achieved its third consecutive rise with the appreciation of 1.07% at the close of the day yesterday, and the incipient bullish streak begins to generate expectations in the productive and exporting sectors of Uruguay, who claim for the improvement of the exchange rate for greater international competitiveness. Why is this rise after a long downtrend?
The second day of May closed with good news: with an increase of 1.07%, the dollar reached its third consecutive rise —also counting the last day of April— and a value of 39.517 pesos, according to the daily price report of the Central Bank of Uruguay (BCU). Although the increase was not enough to break the 40-peso floor, after more than a month without being able to exceed the 39-peso line, the current price seems to be responding, finally, to the drop in the Monetary Policy Rate (MPR) by the monetary authority.
This is the perception of Francisco Echegoyén, financial analyst Gaston Bengochea, who pointed to scope.com that “when the BCU cuts the reference rate in pesos, that little by little, gradually discourages the sale of dollars for placement in weights”. Due to this lower sale of foreign currency, “the dollar began to rise, because it is not as attractive to be placed in pesos” as it was before, he explained.
The economist of the Center for Economic Research (Cinve), Adrián Fernández, for whom, however, it is necessary “to be cautious about the movements of the last few days”, since “we have had episodes of rising days before, and the dollar has been in negative territory since the beginning of the year”. Still, he noted that “It is possible that this last market reaction is explained by the change in monetary policywith the decision to reduce the TPM”.
A differentiated opinion was given Giuliano Cantisani, economist of C.P.A. Ferrere: “Although it is difficult to specify with certainty the causes of the dollar’s variations, especially in such short terms, one of the main reasons is associated with speculation about what would happen with the meeting of the fed, which took place yesterday. On this occasion, the Federal Open Market Committee (FOMC) decided to increase its benchmark interest rate by 25 basis points. The dollar tended to strengthen internationally after this decision, ”he reflected, in dialogue with this medium.
Is the dollar on the brink of an uptrend?
Although the US currency appreciated for three consecutive days, analysts do not dare to take a fully optimistic perspective.
From the Cinve they expect a dollar growth in the year“but the increase, if timid reductions in the TPM are maintained, will not be elevatedprobably below inflation”, as Fernández explained to Ámbito.com.
For his part, Echegoyen considered that “we are in a stable trendneither down nor up. Among his arguments, he highlighted the recent historic improvement in the country’s credit rating by the agency Standard & Poor’s (S&P) This generates greater confidence in international investors and, therefore, an increase in the inflow of capital that conditions the price of the dollar downward. And, at the same time, he pointed out the possible measures that the government can take regarding the exchange rate in favor of the national export sector, as an upward factor.
At CPA Ferrere, beyond the specific factors of the immediate context, they believe that the Uruguayan peso will tend to depreciate slightly this year, in favor of the dollar. On the one hand, on one lower net currency balance compared to 2022 as a record year for exports of global goods and services, hand in hand with the flows of Foreign Direct Investment (FDI) that were close to all-time highs.
“This would not be repeated this year due to a downward correction of export pricesadded to the effects of the drought. Although the revival of China and the start of exports of PSU 2 they will partially compensate, they will not be enough to counteract the above, so that exports of goods would fall this year in relation to last year,” Cantisani said. He also referred to a lower FDI due to the completion of the works related to UPM 2. “In short, after a year with an abundance of foreign currency such as 2022, this year the balance of external financing would tend to normalize,” he explained. .
Of course, another factor that could boost the dollar this year is the change in the bias of monetary policy which would have started its less contractive path with the decision of the BCU to lower the TPM by 25 basis points.
The Argentine situation and its possible impact on the country
Faced with the consultation on the possible impact of the exchange and economic situation of Argentina Regarding the local price of the US currency, especially in the retail market, the analysts agreed that such conditioning will not occur.
For Echegoyen, “we are in opposite lanes”; while for Fernández the context in the neighboring country “is added as one more factor that is putting pressure on the exchange market, in this case to the rise of the dollar. But they are amounts that are much lower than the financial movements induced by monetary policy. So we don’t think it will have a significant impact.”
“In principle, no large impacts of the “contagion effect” type are expected from Argentina to Uruguay. Argentina has suffered intense depreciations in the recent past that have not translated into depreciations of the Uruguayan peso, due to the different macroeconomic fundamentals,” said Cantesani, in this regard, and considered that the greatest potential impact could be related to the outflow of foreign currency from Uruguay to Argentina via outbound tourism or border purchases; situations that, in turn, have already been present since the end of the sanitary restrictions in the context of the Covid-19 pandemic, so it would not imply greater additional pressure.
Source: Ambito
