The Peruvian Sol continues to fall vs the US Dollar as trade imbalances and a slowing economy pressure the currency.

Great for visitors, hard on those who have borrowed in dollars.

Via El Comercio Peru:

Exchange rate rises to S / 3.204, the highest level since 2009

The exchange rate rose on Thursday to a new high of more than six years for purchases of dollars from foreign investors who expect the release of a report on US jobs that would give clues about a possible rise in interest rates in September .

The dollar rose 0.09% to S / 3.204 points, its highest level since the S / .3.223 units of 9 March 2009. On the eve, the local currency ended at the S / 3.201 units.

To counter the demand for dollars, the Central Bank sold US $76 million in cash, at an average exchange rate of S / 3.204 units.

During 2015, the dollar accumulated a rise of 7.48%, while official sales totaled US $5,616 million in the period.

During the day, the central bank also sought to mitigate the fall placing exchange swap by S / 80 million and Readjustable certificates of deposit  (CDR) for S / 300 million.

Source: Tipo de cambio subió a S/3,204, nivel más alto desde el 2009 | Mercados | Economía | El Comercio Peru (Google translate – authors corrections for clarity)

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While we personally like seeing our dollars go farther in Peru, the fact that 50% of all corporate, private and governmental debt is in dollars means a hardship for many. Any interest rate increase by the Federal Reserve will further pressure the Sol and cost more for dollar borrowers.

With the commodity markets in freefall as China slows, the prospect for an uptick in the Sol appears unlikely for the time being. However, should the Federal Reserve publicly decline to raise rates, we may see a medium term stability.

As Peru continues to run current trade deficits, and dollars flee in a reinforcing circle, the likelihood is on further declines in the Sol. Travelers will enjoy the lower prices, but the dollar borrower here is getting squeezed.

©2015 Ben Gangloff

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