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South American Currency Analsis

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Currency exchange rates are determined by a wide array of factors, and the degree of influence of each factor varies from nation to nation with time. The trend of exchange rates is of significance to nations, traders, and investors because it affects price levels, trade balance, and output. The fact that the exchange rate is an important determinant of various aspects of the economy means that being capable of forecasting the trend of the rate of significant economic value. It enables nations, investors, and traders to determine the economic health and stability of a nation and opportunities in profitable trading and investment. Anyone thinking of investing, trading, or sending and receiving money from the South American nations should keep an eye the trend in the currencies of South American nations analyzed herein.

Venezuelan Bolivar
As a trader or investor, one should be wary of the Venezuelan economic state, which is in a chaotic state with a slowing economic growth, shortage of basic goods, and an inflation rate that is above 60%. The nation’s earnings in foreign exchange have plummeted as the oil prices declined in 2015 and 2016. The oil price problem has been worsened by other emergent problems such as the nation’s failed exchange rate system, mismanagement of the nation’s economy, and populist policies, which have killed the vibrancy of the economy. The nation’s Bolivar is also overvalued at the official exchange rate, and the complex tiered exchange rate system with three tiers complicates the exchange rate system and further worsens stability of the currency because the last tier favors the currency black market, which further destabilizes any form of currency stability and value. The tiered system offers different exchange rates to different people. As such, it is vulnerable to abuse and it becomes a source of instability that traders and investors should be cautious about.

Chilean Peso
Copper exports are the major influencing factors of the Chilean Peso exchange rate in the long term. However, other factors also play a role, and these include quantitative easing by the Federal Reserve, local pension schemes, global financial status, and the interest rate differential. The interventions from Chile’s Central Bank on the exchange rate since 2008 have had little effect on the Peso’s exchange rate. Though it is clear that the decline in the growth of China’s economy as well as the slow growth in the developed world, may cause further currency devaluation as the major export (Copper) gets a decline in demand. Overall, the nation’s relative growth at 7.7%, Copper prices, and the balance in trade are the three major currency exchange influencing factors that other nations, traders, and investors should look out for in their analysis.

Brazilian Real
The exchange rate of the Brazilian Real has been on the decline and Brazilian producers have been waiting for positive impacts of the strong dollar in the short-term. However, consumers may experience a decrease in their purchasing power. But being a commodity currency, the weak Brazilian Real will be beneficial to its commodity exporters who produce iron, coffee, corn, and soy beans because their produce will be priced in US dollars, which will increase the local value of the produce. This trend may compensate for the sluggish growth in China, which is one of Brazil’s major trading partners. The Real is expected to devalue further because China’s slowdown is negative and thus the devaluation will be positive and the costs in dollars will reduce as well as investment. However, there is a fear of inflation because the strong dollar may make imports expensive. Though there should be little worry because Brazil’s imports account for less than 15% of its GDP. Tourists destined for Brazil are anticipated to grow in numbers due to the favorable rate of exchange to the USD.

Colombian Peso
The economic growth has been on a downward spiral since 2015 when the anticipated growth was reduced from 4.8% to 4.2% due to unfavorable pricing trends in the global oil industry. Oil is Colombia’s major export accounting for over 50% of the nation’s exports, and a UN-commissioned study showed that for every one dollar reduction in global oil pricing, Colombia loses $430000 million Colombian Pesos. The unpredictability of global oil prices implies that the currency exchange rate of the nation is also likely to be unpredictable. Colombia’s recent tax reforms are also likely to affect investment as the nation tries to raise more to support the economy. There is also too much uncertainty about these tax reforms, which make investment less likely to increase in 2016. As such, the US dollar is expected to continue growing strong against the Peso as Colombia’s oil fortunes remain bleak. However, exporters in other industries are likely to gain a competitive edge in the global market due to a weak Peso.

Argentine Peso
Argentina’s relatively positive trade balance since 2014 has been perhaps one of the elements that has given it a slightly stable currency exchange rate, but it is also on a slow decline in value against the dollar like most of its neighbors. The nation’s relative growth’s influence on the exchange rate stands at 7.7%, but the decline in oil prices has dealt a blow to its development record. Argentina is a major importer of commodities such as soy beans, corn, soy bean meal, oil, and automotive products. The decline in oil prices and demand from some of its major traders such as China have been behind the nation’s weak currency against the dollar and with little to no increase in China’s growth and oil prices in the recent past, the Argentine Peso is expected to continue being weak.

The Paraguayan currency is one of the South American currencies that have been slightly stable due to a positive economic growth projected to be higher by 05% when compared to the 2015 rate. However, its negative trade balance has had a negative effect on its currency exchange rate. Paraguay is a major importer of commodities such as Bovine meat, petroleum products, soybeans, soy meals, computers, and fertilizers. The current exchange rate is expected to stay relatively stable because its import markets mostly in South America are still stable and it has little dependency on large economies such as China.v

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