Chilean peso expands rally after Central Bank intervention

The Chilean peso has enjoyed a prolonged rally since the country’s central bank last week announced a $25 billion intervention to boost the currency after a series of historic lows, but it could face a bumpier path in the coming weeks.

The peso closed Tuesday up 1.81% at 923.80 to the dollar, lifting its gains to 13.21% from an all-time low of 1,045.80 hit last Thursday before the intervention. .

On Monday (18), the peso was helped by a rise in the price of copper, of which Chile is the world’s largest producer, but the currency continued its rally on Tuesday, even as the price of the metal fell.

Jorge Selaive, chief economist at Scotiabank Chile, said a “brutal” drop in risk fund shares in the country’s AFP pension system is leading to investments in more conservative funds, resulting in the sale of dollars and helping the exchange rate.

Furthermore, he said the central bank has not announced how it will “sterilize” the intervention or remove excess dollars it is pumping into the system through daily currency auctions, but signs point to the bank allowing lower-maturity bonds to mature. to 360 days.

Another contributing factor is that foreign investors are putting off buying dollar futures contracts, he said. “They are waiting for the exchange rate to stabilize at new levels to reassess their strategy in Chile,” said Selaive.

However, the peso remains susceptible to speculation related to fluctuating copper prices and political uncertainty over a proposed new constitution in Chile, as well as recent intervention, according to Victor Salas and other economists at the University of Santiago.