(Bloomberg) — The Chilean peso is the worst performing Latin American currency on Monday, as traders continue to adjust positions with a moderate central bank, while inflation accelerates and the covid outbreak in China threatens to curb demand for the country's copper exports.
The Chilean currency weakened by 0.6%, beyond its 100-day moving average, which may trigger stops if a break in the level is confirmed. The moving average has been the strongest technical indicator in the Chilean market in recent years.
The Chilean peso has depreciated by 3.9% so far this month, the worst performance among the 24 major emerging market currencies followed by Bloomberg after the Hungarian forint.
Copper was down 1% today, as China's largest outbreak of covid-19 in two years continues to spread despite a prolonged lockdown of Shanghai's 25 million inhabitants. Restrictions weigh on the economy and further cloud the commodity outlook.
Copper volatility remains in check, but a potential sell-off may increase Chilean asset problems, as high commodity prices are one of the reasons behind capital flows to South American countries in the first quarter of the year.
The more moderate tone of the Central Bank of Chile following the 150 basis points increase in its rates last month is also contributing to the negative perception, as inflation shows no signs of slowing down. Chile's CPI reached 9.4% in March versus an estimate of 8.7% and 7.8% previously.
Chile's 2-year swap rates, which had sunk by central bank comments following the latest rate decision, rose 80 basis points in the last five sessions and are also extending the variation by 7 basis points on Monday.
The peso should depreciate to 850 to the dollar by the end of this year, according to LarrainVial economists, and consider that one of the main risks is the drafting of a new Constitution.
The Colombian peso strengthened by 0.2% and was the best performing Latin American exchange rate on Monday, despite the 4% drop seen by oil in London. Operators cited corporate entries as the reason for the superior performance, as no significant news emerged over the weekend.
The Colombian currency remains confined between the key level of 3,730 pesos per dollar and the 200-day moving average at 3,865 pesos per dollar, as the break of the lower limit of the range last week failed to generate bullish momentum.
The Peruvian sun was pointing down, in line with the negative perception in the region, while President Castillo's popularity is in free fall amid rising inflation and massive unrest.
A poll showed that nearly two-thirds of voters think they should resign. Castillo has just escaped his second impeachment attempt and has struggled to rule amid constant political problems.
Peru's congressional president Maria Alva told reporters that lawmakers are willing to call early general elections. Even so, the sun has maintained most of the 7.8% gain that made it the fourth best performing emerging market currency this year.
(Some of the information comes from FX traders familiar with the transactions who asked not to be identified because they are not allowed to speak publicly.)
Original Note:
CLP Leads Regional Losses Amid Copper Decline: Inside Andes
Davison Santana is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended to be investment advice.
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