Breaking News
Investing Pro 0
Free Webinar - The Role of Psychology in Trading - Thursday, December 8, 2022 | 04:00PM EST Enroll Now

Analysis-Chile's sliding peso reflects tough battle vs rampaging dollar

Economy Oct 03, 2022 07:22AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Chilean banknotes of 1000, 5000, 10,000, 20,000 pesos and coins of (L-R) 100 and 500 pesos are seen in this picture illustration, August 16, 2016. REUTERS/Rodrigo Garrido/Illustration/File Photo
 
BARC
-0.41%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
USD/CNY
-0.09%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
Copper
+0.50%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PRDSY
+1.82%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Alexander Villegas and Natalia A. Ramos Miranda

SANTIAGO (Reuters) - Chile's sliding peso got a shot in the arm in July from a huge $25 billion central bank intervention, but in recent months has been one of the region's worst performers, showing how hard the battle is for policy makers countering a rampaging dollar.

The Chilean currency is threatening to breach the 1,000 peso per dollar line once again after it hit a record low near 1,050 pesos in July. That milestone led the central bank to launch a plan to sell $20 billion in dollars and FX hedging instruments, backed up by a $5 billion currency swap and peso liquidity program.

That move successfully helped cull wild volatility.

However, as the U.S. dollar soars and interest rate hikes by the U.S. Federal Reserve hammer global currencies from the British sterling to the Japanese yen and Chinese yuan, the impact of Chile's intervention has faded.

In the last two months the currency has weakened some 6.5% versus the dollar, trailing major regional currencies in Brazil, Mexico, Peru and Colombia. It is likely to weaken more after the central bank ended its intervention program on Sept. 30.

(GRAPHIC: Latam currencies vs the dollar - https://graphics.reuters.com/CHILE-CURRENCY/klpykxdlbpg/chart.png)

"Probably in the short term, maybe in October we'll see 1,000 pesos (to the dollar) and maybe we'll beat our historic low," said Angel Rubilar, a Santiago-based senior analyst at Libertex. The currency is now worth 968 per dollar.

Chile is not alone in having to defend its currency. FX interventions have increased in India, the Philippines and Korea in recent weeks, while Japan's central bank spent a record 2.8 trillion yen ($19.7 billion) in the FX market last week.

That intervention, following the yen's slump to a 24-year low of nearly 146 to the dollar, triggered a sharp bounce of more than 5 yen per dollar, although the currency has drifted down again to around 144.7.

(GRAPHIC: Chilean peso - https://graphics.reuters.com/CHILE-CURRENCY/egvbkzawlpq/chart.png)

'RESERVES AREN'T INFINITE'

Diego Mora, a market strategist for XTB Latam, said that Chile's central bank intervention had helped reduce the chances of aggressive currency moves, but had its limits.

"The intervention was successful for what the central bank needed, which was controlling volatility in the exchange rate, but not the price," said Mora, noting that markets were already pricing in the end of the intervention next week.

"The possibility of a sharp crash is lower."

Chile, the world's top producer of copper and the No. 2 for electric vehicle battery metal lithium, is also grappling with annual inflation at some 14%, weakening copper prices and a predicted recession, compounding the hit from the strong dollar.

Currency strategist Juan Prada (OTC:PRDSY) at Barclays (LON:BARC) said the tightening of global financial conditions was ramping up pressure on some regional markets particularly susceptible to external global economic impacts.

"We have identified Chile and Colombia as vulnerable, and COP (Colombian peso) and CLP (Chilean peso) have underperformed LatAm peers" since the U.S. Federal Open Market Committee meeting in September, he said.

Chile's central bank, however, has given no indication that it would intervene again. Analysts and traders say that despite pressures, another intervention would be "hasty" and could risk longer-term stability by denting levels of reserves.

"Reserves aren't infinite," Mora added. "If the central bank has less direct reserves of foreign currency, the country becomes riskier with its long-term interest rates."

Analysis-Chile's sliding peso reflects tough battle vs rampaging dollar
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email