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The One Latin America Winner From U.S. Economic Boom: Currencies

The One Latin America Winner From U.S. Economic Boom: Currencies

Posted by Juan Gavasa on December 26, 2014

In what has been a tumultuous 2014 for Latin American currencies, it is the quetzal that has stood out as the lone bright spot.

That’s right, the quetzal -- Guatemala’s currency.

As the Argentine peso sank 24 percent and the Brazilian real dropped 12 percent, the quetzal advanced 3 percent, posting its best annual rally since 2010.

The divergence comes down in large part to the strengthening U.S. economy. While the pickup fueled speculation the Federal Reserve will raise interest rates next year, luring investment away from the region’s bigger financial markets, it put more money in the pockets of immigrant workers from places like Guatemala. That extra cash translated into an 8 percent jump in remittances in the first 11 months of the year, to $5 billion. In a country with a gross domestic product of just $54 billion, those inflows move markets.

“Our principal export continues to be human talent,” Benjamin Arriaza, the director of operations and finance at Guatemala City-based lender Grupo Financiero Bantrab, said in a phone interview. “The quetzal tends to appreciate this time of year, but this year it has climbed more than normal.”

Only three currencies in the world -- Somalia’s shilling, Pakistan’s rupee, and Sudan’s pound -- gained more than the quetzal in 2014.

Long-Tailed Bird

The currency, which is named for the long-tailed bird that is Guatemala’s national emblem, traded at 7.6135 per dollar on Dec. 24 after reaching a three-year high of 7.5985 on Nov. 10. Arriaza said the quetzal could pare gains further in early 2015, weakening to about 7.8 per dollar, as importers pay for goods they purchased before the holiday season.

Guatemala’s central bank regularly intervenes in the foreign-exchange market to buy and sell the currency. Banco de Guatemala President Julio Suarez said the bank’s aim is to moderate volatility rather than influence the exchange rate. The bank reported this month that it bought $232 million of foreign currency this year through Dec. 12, up from about $75 million in the whole of 2013.

While the currencies in other Central American nations, which combined have about 3 million immigrants living in the U.S., didn’t rally like the quetzal did, they also have fared better than those across emerging markets.

Oil Decline

Nicaragua’s cordoba fell 4.7 percent against the dollar and Honduras’s lempira dropped 3.7 this year. Developing-nation currencies on average are down 11 percent, according to a Bloomberg index. Mexico, the country with the most immigrant workers in the U.S., has been hurt by the tumble in oil, its biggest export. The peso is down about 11 percent this year.

For Guatemala, the oil plunge has been a boon.

The country is a net importer of crude, meaning that the 44 percent price decline since June has narrowed its trade deficit and boosted the quetzal. Textiles, sugar and coffee are the nation’s biggest exports. The economy -- though hurt by what the International Monetary Fund said in August was a combination of low investment, institutional weakness and violence -- will expand 3.9 percent in 2015 after growing 3.7 percent this year, according to forecasts by the IMF and analysts surveyed by Bloomberg.

$800 Million

The quetzal got a further push from an $800 million bond sale by Comunicaciones Celulares SA, the mobile-phone services provider owned by billionaire Mario Lopez Estrada and Luxembourg-based Millicom International Cellular SA. (MIICF) That was the biggest sale out of Guatemala since at least 1999, when Bloomberg began compiling the data.

Comcel said it would use the bond sale revenue to refinance existing debt and for “general corporate purposes.” Foreign bond sales tend to raise demand for the quetzal as companies convert their dollar revenue into local currency.

Companies have been selling debt abroad to lock in borrowing costs before the U.S. starts raising rates, former central bank President Maria Antonieta Del Cid said in a Dec. 15 interview. Debt traders anticipate the Fed will begin lifting its benchmark rate by September after the U.S. economy expanded at its fastest pace in 11 years in the third quarter.

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