Colombia’s peso under pressure from Turkey’s Lira and U.S oil surplus

Fears that Turkey’s Lira crisis will drag down the currencies of emerging markets, compounded by falling global oil prices, pushed the Colombian peso to trade at $3,050 to the U.S dollar on Wednesday, and level not seen since June 2017.

While market analysts predict that Turkey’s embattled economy could deteriorate further as threats of a trade war between the governments of Recep Erdogan and Donald Trump escalate, the Colombian peso has also been rattled by tariff disputes involving the U.S and its main commercial allies. Compounding investor jitters that emerging markets have the most to lose in trade disputes, a glut in U.S oil reserves saw the price of Brent crude hit a four-month low of US$70 per barrel. Data released this week by the U.S Energy Information Administration (EIA), also revealed a spike in U.S. crude oil production, averaging 10.8 million barrels per day (b/d) in July, up 47,000 barrels from June. The EIA also forecasted that U.S. crude oil production will average 10.7 million barrels per day in 2018, and jump of 1.3 million (b/d) from 2107.

As the gulf widens between the U.S. benchmark West Texas Intermediate (WTI) and the international benchmark Brent, Colombia’s oil export revenues have yet to be impacted adversely, as the state-run oil company Ecopetrol S.A announced in its 2Q report. With the highest production in almost two years of 721,000 barrels per day, up 2.8% from the first quarter of this year, Ecopetrol’s CEO Felipe Bayón, said the energy giant has posted a net profit in the first half of 2018 of $6.1 trillion pesos “thanks to the optimal operation of the different business segments and the group’s financial discipline.” Bayón also confirmed that the company maintains a solid cash position of $15.8 trillion pesos after paying out $2 trillion pesos as dividends on 2017 earnings. Risk agency Moody’s upgraded Ecopetrol’s baseline credit assessment from BA3 to BA1.

But optimism regarding Ecopetrol’s financial muscle has not translated to the Colombian stock exchange (Colcap), which continues on a losing streak, performing among the worst 15 in the world. The recent drop in the prices of copper, nickel and zinc over concerns that an all-out currency war with U.S dollar and Turkish Lira will spiral out of control, threatens to drain the Colombian economy of much-needed equity at a time in which the new administration of President Iván Duque needs cash reserves to initiate fiscal and social reforms.

But the Colombian peso isn’t the only currency feeling the wrath of the bearish greenback. India’s rupee hit an all-time low against the dollar this week and Russia’s troubled rouble forced the country’s central bank to temporarily restrict foreign currency purchases.

As Turkey’s Erdogan helps Iran dodge U.S sanctions by importing their oil, and Russia’s Putin says the days of the dollar as the world’s currency are “numbered,” Colombia’s peso will most likely continue to buckle under the strain of increasingly tense international disputes.