USD to COP Forecast

The overall weakness of the Colombian Peso against the USD reflects the disparities between the two economies. On the one hand, the US is a diversified economy with a GDP of over $23 trillion and a population of over 330 million. Conversely, Colombia is an emerging market with about 62 million people and a GDP of over $361 billion.

History of the USD to COP pair

The history of the USD to COP exchange rate can be traced from the historical ties between the US and Colombia. The records show that Colombia initially used the Spanish real until 1820 and moved to Colombia real post-1820 till 1837.

After 1837, the Colombian Peso became the primary unit of currency. At that time, Colombia was involved in trading activities with the US. The US dollar was introduced in 1792 when the US Mint started operations.

A lot has happened since the early days of the USD/COP exchange rate, including the end of the gold standard in 1971.

As shown below, the USD to COP pair has generally been in a strong bullish trend over the years. The only time when the Colombian Peso strengthened against the US dollar was between 2002 and ~2012. This period coincided with the end of the dot com bubble and the Global Financial Crisis (GFC) of 2008/2009.

Since 2012, the USD to COP pair has been in a broadly upward trend that saw a rise from a low of ~1,650 to over 5,000.

Latest USD to COP forecast

The USD to COP price has been in an uptrend in the past 12 months. Data by TradingView shows that the Colombian Peso has crashed by more than 30% in this period because the US dollar index surged to the highest level in more than 20 years.

Fed tightening

There are several reasons why the USD to COP price surged since 2022. The most important one is the fact that the Federal Reserve has been tightening aggressively in a bid to lower inflation. Data compiled by the Bureau of Labor Statistics (BLS) showed that consumer inflation jumped to a high of 9.1% in 2022.

Therefore, the Fed decided to hike interest rates from about zero to over 4%. Higher rates help to lower inflation by reducing spending in the economy. In addition, the bank decided to start implementing quantitative tightening (QT), which reduces the size of its balance sheet.

The Fed has maintained its hawkish tone in 2023. In its first meeting in 2022, the bank decided to hike rates by 0.25%, bringing the base interest rate between 4.50% and 4.75%. With the unemployment rate at a 53-year low, and inflation remaining sticky, the Fed has hinted that it will continue hiking rates in the coming months. Some analysts believe that interest rates will soar to 6% for the first time in decades.

Therefore, the USD/COP rose because the US dollar is seen as a safe asset and American assets yielded better returns as rates jumped.

Colombia interest rate hikes

Colombia observed higher inflation after the Covid-19 pandemic. This inflation was caused by higher energy prices and the supply chain shortages that happened during the pandemic. The weaker Colombian Peso also contributed to inflation.

The Colombian Central Bank, like the Federal Reserve, decided to start hiking interest rates. As shown below, it hiked interest rates from about 2% in 2021 to over 12%. Analysts believe that the bank will need to hike interest rates several times this year in a bid to control inflation.

USD/COP technical analysis

Conducting technical analysis is a good way to predict the next price action of a currency pair or any other asset like stocks and commodities. On the daily chart, we see that the USD/COP price has been in a strong bullish trend in the past few months.

This rally saw the pair jump to a high of 5,120 on November 7, 2022. Most recently, the pair has formed a triple-top pattern that is shown in green and it is usually a bearish sign in price action analysis. The neckline of this pattern is at 4,470.

Therefore, while fundamentals are supportive of the pair, there is a likelihood that it will continue dropping in the coming months. If this happens, the pair will drop and retest the support at 4,470.

However, in the long term, it is suspected that the US dollar will resume the bullish trend because of the strong fundamentals of the American economy.

Transferring USD to COP

The need for USD to COP transactions is continuously rising because of the rising trade volumes and remittances.

As per the US census data, the US exports to Colombia were more than $16.5 billion in 2021 which is approximately a 38.1% hike from 2020. In the same period, US imports from Colombia were about $13.2 billion depicting a 21.8% increase from 2020. Analysts believe that trade flows will continue with time, meaning that demand for the two currencies will be high.

Remittances from the US to Colombia have been rising in the past few years. Indeed, the total value of remittances to GDP has been rising and stood at 2.74% in 2021. Most of these remittances are from the US.

It is easy to send money from the US to Colombia. There are numerous companies that help to facilitate these transfers. For example, you can use MoneyGram, Western Union, and Ria Money Transfer to send money. Also, you can use traditional approaches like wire transfer, which is a sort of bank-to-bank transfer.

Most importantly, you can use newer companies that make it simple to send money such as Wise, WorldRemit, and Remitly among others. Using a comparison website like MoneyTransfers can simplify this process by comparing the best companies in terms of usage, fees, and time of money transfer completion.

Is it a good time to buy USD with COP?

As mentioned in the technical analysis above, it is expected that the USD/COP pair will continue to fall in the near term.

However, it is believed that the bullish trend will emerge in the longer term, therefore, it makes sense to buy the USD with COP as the greenback might become a bit cheaper in the near term. In the long term, the US dollar is expected to do better than the Colombian peso.

USD to COP 6 months forecast

The USD to COP outlook will depend on several factors. The most important factor is the inflation trend in the United States.

If inflation remains at an elevated level, there is a likelihood that the Fed will continue implementing the anti-inflation measures in the coming months. As a result, the US dollar will strengthen more because the yields on US assets will be higher.

The other catalyst for the pair will be the US debt limit debate in the US. Democrats and Republicans are disagreeing on how to increase the debt limit. If the two sides fail to reach an agreement by June, it means that the US will default on its debt obligations, which will drag the USD lower.

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