After I highlighted the news in my previous column about the rate cut in Chile—which would put pressure on the exchange rate toward the 850 range, we see that today the situation is different in that we are at 900—a dollar that has appreciated globally—putting the previous view on hold.

Looking at the exchange rate, the main factors that have influenced recent trends are changes in interest rates (both domestic and international), the price of copper, and risk. While country risk remains stable—with the current constitutional process having less of an impact than it did last year— copper prices and expectations regarding the Fed rate have pushed the dollar up locally to levels above the psychological barrier of 900.

Statements by Fed officials that the fight against inflation is not over and will require further action imply that interest rates will remain at their current high levels for longer than the market expects. This has led to a multilateral appreciation of the dollar, which has risen from 103 in early September to its current level of 105.8, reflected in the euro’s decline from 1.08 to 1.06. This effect, combined with the expected decline in domestic interest rates, has pushed the dollar to its highest levels since November of last year.  

A third factor is the price of copper, which, although it has not fallen to record lows and remains steady in the range between 3.65 and 4.0, has seen lower demand from China —mainly due to problems faced by real estate giants—has caused copper to lag behind other commodities such as oil, which, in terms of exchange rates, have also contributed to the rise of the dollar locally. 

With the other currencies in the region—except for the Argentine peso—appreciating over the course of the year, the decline we expected toward the 800 level will apparently have to wait until next year, when we have a clearer picture of how long the Fed rate will remain at high levels and the effect of the drop in the local interest rate is factored in. This is because current levels reflect tail events such as the pandemic and local risks that no longer exist today. 

Gustavo Gallardo Casal, CMT

Assistant Manager of Sales & Trading