Exchange Rate - What Is Going On?

Feb 7, 2007
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Exchange rate - what is going on?

http://www.bancentral.gov.do/tasas_cambio/TAC4009_BC_2007.pdf

Todays' rate by Banco Central is 31.94 (exchnage houses, banks, usually quote 50 points below) ... the rate has been continually declining (Peso appreciating) since reaching its height on Juanuary 9 (34.27), declining dayly by 10 points. The Peso is appreciating also against Euro.

Search in DR1 exchange rate's forum revealed that the rate was about 32 at the same time last year (April 2006), down from 34-something in February 2006.

Even though Euro appreciated against Dollar in recent month a lot, I don't think Euro is the leading currency in determining Peso's exchange rate to Dollar (ties with US are more important, and I do not think DR uses curency basket for its exchange rates).

I have done press research recently and I cannot seem to find any articles dealing with Dollar exchange rate.

I would have understand that the Peso was appreciating up to Semana Santa (Holy week) because of influx of tourists (the highest season of the year January-March) and lots of currency brought in to DR, thus appreciating tendencies for Peso. But it does not make any sence now.

Is somebody trying to keep dollar artificially low and push it even lower?

I'd like some discussion on what may be going on and how low will it go?

What are your thoughts?
 

cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
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Supply and Demand. Any "artificial manipulation" in a free market would result in a black currency market either way, and there isn't that I'm aware of.

China can get away with manipulation because they do not have a free currency market.
 
Feb 7, 2007
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Yes, you're right, supply and demand.

My question is what are factors contributing to the weak demand and strong supply.

One factor - peakiest tourist season (PTS) of the year that I've mentioned - should no longer be a contributing factor. Apparently shift in demand (end of PTS) should have had depreciating tendencies.


My question again is, we are seeing history repeat (January 2006-January 2007, April 2006-April 2007, December 2005 - December 2006 - december 2007 ?). My question is what make supply weak and demand strong this time of year?
 

cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
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I suspect it's more in variances on the supply side. There are more dollars (and euros/CDN) coming to the DR certain times of the year: Christmas & Easter.
 
Feb 7, 2007
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correction...
should have been

"what make supply STRONG and demand WEAK this time of year "

yes, supply is high, otherwise if the demand was strong we would see the rate go up, instead of down
 

Criss Colon

Platinum
Jan 2, 2002
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yahoomail.com
The Dominican Government Has A Vestid Interest In An Inflated Peso!

They owe "BILLIONS" of Dollars in international debt! The "cheaper" that they can buy those Dollars using Pesos,the better for them! Nothing more,nothing less!
Sooner or later they will no longer be able to inflate the pesos and there will be a "correction"! I can't wait! CCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCCC
 

Tamborista

hasta la tambora
Apr 4, 2005
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Cobra is correct about supply and demand.
However we are in shoulder season which is historically a "lower demand" cycle, The RD/USD should be higher not lower!

Perhaps USD weakness vs every other G7 currency comes into play, although this is rarely correlated to the RD peso.

tambo'
 
Feb 7, 2007
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Perhaps USD weakness vs every other G7 currency comes into play, although this is rarely correlated to the RD peso.

tambo'

Euro has also declined a few points against Peso. Means a general appreciation of Peso is going on. With all the debt they are taking in (to buy metro, etc) they should be interested in getting more Pesos off every Dollar (their costs are in pesos). On the other hand, Chris Colon is right, makes sence to lower the rate for dollar to "buy" dollars to make debt and interest repayments.

But this is not good for the economy, central bank should intervene. The pesos is not fully convertible, which gives Central Bank tools and excuses to make interventions. I remember last year leonel saying that the convenient rate was 33 to 34 and that the CB should maintain that parity. Has this, somehow, changed?

Thing is, when the rate goes down, nobody lowers prices. Doesn't matter if they merchandise/goods system is FIFO (First In First Out) or LIFO (Last In First Out) price is same or goes up, for imported goods, and many domestic goods as well, even if the dollar goes down. But if it goes up, they increase twofold the difference in exchnage rate increase.

Lower dollar is also bad for dominican exports - even though I doubt there are many, besides some agricultural items.
 

planner

.............. ?
Sep 23, 2002
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Don't forget about the "lag". Just because we have just finished the high season does not mean the money stops coming in. IN fact many of the payments will lag behind up to 3 months.

Also - the government is very interested in keeping the exchange rate stable. They will manipulate it somewhat, not as much as in the past but they can and will manipulate it when needed.
 

Mirador

On Permanent Vacation!
Apr 15, 2004
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... My question is what are factors contributing to the weak demand and strong supply. ...

You all know that the US dollar is increasingly loosing strength against most currencies (down to a 26 year low against the UK pound, and a record low against the euro, etc.), so this means more dollars are needed to buy the same amount of goods (and services, including tourism), which of course adds to the increasing supply of US dollars...
 
Feb 7, 2007
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so this means more dollars are needed to buy the same amount of goods (and services, including tourism), which of course adds to the increasing supply of US dollars...

DR tourism providers have costs based in DR Pesos. The wages, cost of meat, potatoes, vegetables, etc., all are based on pesos prices. If the cost is 100.000 pesos, with a lower dollar, more dollars need to come in, which is having effect back on exchange rate by lowering it further. It's a spiral effect.

That's why there are central banks that intervene in countries whose currencies are not fully convertible to "protect" spiralling effect and also pillouts to other sectors of the nation's economy.

Weak dollar is not good for tourism, because it makes the destination more expensive.
 

cobraboy

Pro-Bono Demolition Hobbyist
Jul 24, 2004
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Euro has also declined a few points against Peso. Means a general appreciation of Peso is going on. With all the debt they are taking in (to buy metro, etc) they should be interested in getting more Pesos off every Dollar (their costs are in pesos). On the other hand, Chris Colon is right, makes sence to lower the rate for dollar to "buy" dollars to make debt and interest repayments.

But this is not good for the economy, central bank should intervene. The pesos is not fully convertible, which gives Central Bank tools and excuses to make interventions. I remember last year leonel saying that the convenient rate was 33 to 34 and that the CB should maintain that parity. Has this, somehow, changed?

Thing is, when the rate goes down, nobody lowers prices. Doesn't matter if they merchandise/goods system is FIFO (First In First Out) or LIFO (Last In First Out) price is same or goes up, for imported goods, and many domestic goods as well, even if the dollar goes down. But if it goes up, they increase twofold the difference in exchnage rate increase.

Lower dollar is also bad for dominican exports - even though I doubt there are many, besides some agricultural items.
Dollars are needed to buy US and other goods. If there are not enough dollars in aggregate in the DR within the window of payment, the rate will change to attract more.

I used to change money at a place in Sosua that sold liquor. They got a shipment every Friday that had to be paid in dollars. If they didn't have enough, their rate was 2+ pesos more that the cambio's or street vendors to encourage MORE to be exchanged.

Supply and demand.
 

aegap

Silver
Mar 19, 2005
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Per dr1 Daily News, ..

Investment brings peso appreciation
Bear Stearns reports that healthy levels of foreign investment and a significant contraction in the size of the Dominican Republic's monetary base have underpinned a 4.2% revaluation of the Dominican peso so far this year, with 3.7% of the strengthening taking place during the past six weeks alone. Franco Uccelli, who analyzes the DR for the brokerage firm says that this has caused concern among the country's monetary officials. He explains that the Central Bank has identified sizeable increases in foreign portfolio investments, which have been attracted by the country's improved macroeconomic environment and by its relatively high-yielding peso-denominated assets, as a key factor in the appreciation of the currency. "In response, the Central Bank has implemented new measures designed to limit foreign participation in its weekly auctions of short-term paper (maturities of up to one year). By barring foreign financial institutions from participating in its weekly auctions (participation in its more sporadic auctions of longer term paper is still allowed), the Central Bank is hoping to stem the flow of what it views as 'hot money' in search of a quick profit", he explains. "We believe that what the Central Bank has failed to recognize, however, is that for as long as its securities continue to afford relatively attractive yields, foreign investors will continue to invest in them, even if that means having to execute their purchases, which according to some estimates may have totaled as much as US$80 million in a single week, through a local intermediary, as the new regulations now require".
 

rellosk

Silver
Mar 18, 2002
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Here is a recent article in the DR1 news that gives one explanation for the apprecation of the peso:

Investment brings peso appreciation​
Bear Stearns reports that healthy levels of foreign investment and a significant contraction in the size of the Dominican Republic's monetary base have underpinned a 4.2% revaluation of the Dominican peso so far this year, with 3.7% of the strengthening taking place during the past six weeks alone. Franco Uccelli, who analyzes the DR for the brokerage firm says that this has caused concern among the country's monetary officials. He explains that the Central Bank has identified sizeable increases in foreign portfolio investments, which have been attracted by the country's improved macroeconomic environment and by its relatively high-yielding peso-denominated assets, as a key factor in the appreciation of the currency. "In response, the Central Bank has implemented new measures designed to limit foreign participation in its weekly auctions of short-term paper (maturities of up to one year). By barring foreign financial institutions from participating in its weekly auctions (participation in its more sporadic auctions of longer term paper is still allowed), the Central Bank is hoping to stem the flow of what it views as 'hot money' in search of a quick profit", he explains. "We believe that what the Central Bank has failed to recognize, however, is that for as long as its securities continue to afford relatively attractive yields, foreign investors will continue to invest in them, even if that means having to execute their purchases, which according to some estimates may have totaled as much as US$80 million in a single week, through a local intermediary, as the new regulations now require".
 

J D Sauser

Silver
Nov 20, 2004
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www.hispanosuizainvest.com
From what I understand the present government has an agreement with the World Bank (?) that it (the gov.) won't let the DOP slip out of a 37 DOP / 1 USD ratio. I would hardly call that a currency controlled by offer and demand only. The currency is not traded on international markets either. You are not even legally allowed to take it out of the country. Hence, it is a controlled currency.
I think there is some connected people who make huge amounts of money from insider trading.

Just my opinion... J-D.
 

Tamborista

hasta la tambora
Apr 4, 2005
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JD:

I agree with you on the "manipulation" of the RD Fx market.
Anybody with huge receivables in USD must be connected to The Cambio Mafioso in order to survive.

However, in order to make any kind of worthwhile coin, you need either volatility of more than one peso or move over several million USD.
We have been stuck in a 31.50 - 33 trading range for close to a year.

Hipo and his Fx friends were the king of this market when he would move it 5 Pesos in an hour!

tambo'
 

british bulldog

New member
Jan 21, 2006
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YOU all fail to remember,only 5 years ago the rate was 17-20rd to 1 $ us ,its only that alot of you are out of pocket ,should you want to buy your dollars back and head home.One problem is,when it hit 50rd to 1 $ ,prices sored,and now it is correcting itself,the shop keepers ect will not bring their prices down (GREED)only ,my 2 cents worth ,in one years time 28-29rd to 1$us.with new offshore regulations now in europe people are looking further afield,to put thier stash,and the DR is a nice accomodating place good rates of interest.;)
 

J D Sauser

Silver
Nov 20, 2004
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JD:

I agree with you on the "manipulation" of the RD Fx market.
Anybody with huge receivables in USD must be connected to The Cambio Mafioso in order to survive.

However, in order to make any kind of worthwhile coin, you need either volatility of more than one peso or move over several million USD.
We have been stuck in a 31.50 - 33 trading range for close to a year.

Hipo and his Fx friends were the king of this market when he would move it 5 Pesos in an hour!

tambo'


The problem is there is no RD-FX market... or what ever FX market there is, a few own it. A sideward movement of 8% a year, several times a year is a great "market condition", especially when you can be 100% right at "predicting" the next move... because you're the one who decides which way it will move next and when.

The question was, what are the fundamentals which move this currency. My suggestion was that it's probably less than 50% world economics and socio political thinking... it's about making money or as some may like to call it, greed.

... J-D.