A good way to monitor Latin American currencies is against the Canadian dollar, rather than the US dollar. The USD, as world reserve currency, is mostly a measure of risk tolerance around the world. People fearing instability (still and despite it all) buy greenbacks. But the CAD, as the currency of a stable, developed, but resource-dependent country, is a nice comparison point for the Latin American currencies, as it cuts out a lot of the USD’s noise.
Against the CAD, the Colombian peso long tracked other currencies in the region, particularly the Peruvian nuevo sol and the Chilean peso.
This first chart shows currencies against the CAD from 1 Jan 2010 to 1 Oct 2014. The Colombian peso (COP) is the red dotted line, green is Peru, navy blue is the Mexican peso, and fucsia is Chile. Up top, you see the Brazilian real and the Argentine peso doing their wacky and devaluatory deeds in red (solid line) and purple.
Here’s what the same currencies have looked like over the past calendar year:
This time, Argentina is down there with Peru and Chile, actually appreciating against the Canadian dollar. Mexico is drifting weaker, and Colombia is suddenly tracking Brazil in a big, painful devaluation. The are both big oil producers whose state-controlled companies were once stock market darlings. They are both economies that were overhyped circa 2011, and are now probably in an excessive backlash.
Here’s the 5-year chart. Colombia has detached from its usual peers and is devaluing mightily.
The upshot for me, as a consumer of Colombian Harina P.A.N. precooked corn flour in Canada, is that a kilogram of this white powder has dropped from CAD 4 to CAD 3.3 over the past year.
Given what we already saw in 2014, I suspect Colombia will get a competitive advantage in the production of other white powders. Next year’s coca production reports will likely show Colombian output surging.
Steve, I think you are reporting a mix of spurious correlation, as you know, correlation does not mean causation. All of these countries -except Colombia and Mexico, these are the lesser- are down the hill on the commodity cycle, and with Argentina, Brasil, at the end of the populist cycle. which followed the commodity boom for a long period. Even though Venezuela is not in the chart, this country show the worst performance -both political and economic- since the political future of this country is tight to the political survival of the revolution and its clients. With not political oposition in force, looking a bit comfortable with some “gobernadores, alcaldes and parlamentarios”, positions gained in the past elections, there is still long live for the revolution. From that you can count on domestic particular problems for these countries which faces, including Mexico somehow, the traditional distrust of their monies, nothing that we have not watched for years, the old disease is still there, looks like a long loop.
Correlation in this case is almost certainly a result of shared causation. You can’t see correlations that tight and tell me these currencies are all being judged independently by traders who are considering each on its merits. No, there are groups here. And Colombia has slipped from the “Safe South America” group to the “Risky South America” group. I don’t know why you’re talking about Venezuela, the country with the most out-of-whack currency controls on earth, in the context of these other currencies that are more or less responsive to market pricing.
Inequality is becoming increasingly in Latin America since governments ignore poor population