What happens to the dollar price if the next government is from the right or the left?

Colombia is in a season of election uncertainty and the elections are expected to have an impact on the price of some assets and foreign currency. In fact, according to experts, if the left side wins, the dollar’s price in Colombia will start to rise and reach $4,100.

However, this will be a short-term effect and will drop to $3,800 unless the Government in question takes drastic decisions or changes the country’s economic or fiscal policy; and if commodities continue their uptrend.

“According to a study we did on how financial assets reacted during the election period in the region, we found that the dollar managed to rise more than 10% during times of peak tension. Then, if the next-term president softens his speech, the dollar may fall.”

While the dollar has been on a downward trend lately, the price of Brent crude oil has been on a downward trend due to the country’s capital flows through takeover offers, the geopolitical crisis in Ukraine, which fluctuated at US$122 last week, and taxes. an entity that can have unexpected moves or behaviors due to uncertainty, especially politics.

“In the Colombian case, maintaining a right-wing government can reassure international investors of what might happen in economic policy for the next four years; and this will keep the exchange rate stable given that it is one of the most devalued currencies by the pandemic. “The arrival of a left-wing government can create restraint among investors, which in turn can cause the peso to fall in value due to the scarce circulation of the dollar in the market, making it more expensive,” said Edward Moya, senior market analyst. in Oanda.

Analysts say both Peru and Chile, which have won victories for left-wing parties, devaluation strong currency that lasts only a short time. If a candidate from this ideology is elected, the same expectation will be for Colombia.

“Whether the right goes up or the left goes up, the dollar will tend to go up. As long as the country continues to run a high twin deficit (current account deficit plus fiscal deficit), we won’t be able to have a strong peso because we also import more than we export, which means. José Luis Hernández of the Corficolombiana corporate trading desk said there is always a natural demand for the currency.

For now, the factors that have had and will continue to affect the U.S. currency and exchange rate the most are the rise in oil prices and the uncertainty created by the Russia-Ukraine conflict that can affect more than anything else at the international level. According to experts, another political decision of a country.

The Colombian peso, especially with 7.54%, is the fourth most appreciated currency in 2022, followed by the Brazilian real, Chilean peso and South African rand with 17%, 9.59% and 9.54%, respectively.

Behavior in regional elections

These periods put “stress” on all financial assets, according to an analysis by Casa de Bolsa of the impact on currencies, bonds and stocks in the middle of the region’s presidential election. At peak moments in size, the currencies of Peru, Chile and Mexico reached an 11% devaluation; while the shares fell by 25%; and long-term government debt in local currency were devalued by 187 basis points in each case compared to the average performance of the regional market.

Source: Lare Publica


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