USD/CLP jumps to nine-month highs as copper prices dip, clearing 883.00

• The USD/CLP has climbed higher, hitting new highs as the Chilean Peso lags the US Dollar.
• Inflation is coming down slowly in Chile, but the Chilean central bank may not be going far enough with rate cuts.
• Softening copper prices are wreaking havoc on Chile, the world’s largest copper producer.

The USD/CLP pair has gone on a bit of a tear recently, climbing to nine-month highs as the Chilean Peso takes a step lower in the face of declining copper prices and a central bank caught between a lopsided economy that is stagnating with several notable hot spots.

Copper prices have struggled to find a foothold in the commodities markets, with the red metal trading down to 3.726 USD per pound in the futures market, down from the week’s peak near 3.875 per pound.

Copper peaked at 4.2665 early in the year, and has faltered numerous times, dipping to a low of 3.5283 in late May. With 29% of the global market share, Chile is the world’s single largest producer of copper, and its economy is exposed to fluctuating metal prices on the global market. 

Chilean central bank slows rate of cuts as economy lags

The Banco Central de Chile, Chile’s central bank, cut its interest rate to 9.5% this week, down from 10.25%. Chilean inflation remains high, despite dropping quickly from last year’s high near 12%, and currently sits at 6.5%, over double the Chilean central bank’s 3% target. 

Chile maintained a decades-long high interest rate that quashed economic activity and investment, and there are concerns that too much off the top of rates could start to re-stoke still aggressive inflation. 

The Banco Central de Chile will have its work cut out for it in maintaining stable economic growth while stabilizing a devaluing currency, all while keeping inflation on balance to hit the central bank’s target level by the end of next year, as cited by the Chilean central bank.

Chilean policymakers, ever-uneasy about inflation, have recently raised their projections for end-of-year inflation to 4.4% from 4.3%.

USD/CLP technical outlook

A rising trendline on the daily candlesticks is providing dynamic support for the US Dollar (USD) against the Chilean Peso (CLP), and late August’s swing low near 845.0000 is rapidly looking unattainable unless fierce selling pressure steps into the market.

On the upside, there’s an inflection point near 890.0000, and last September’s peaks near 1,000.0000 may be unattainable without a significant deterioration in Chile’s domestic economy.

USD/CLP Daily chart