After having sought levels near 955 a little over a month ago, today we see that the dollar is at levels close to the 870 zone. This drop is explained by a multilateral weakness of the dollar in the world (taking as a reference the DXY) which went from 107 to the current 103.8, reflecting an important rate movement, together with the Central Bank's announcements of not continuing with its purchase of 40 MM per day.

It is important to place ourselves in the longer-term context: we are coming from the vicinity of 800, a level that oscillated during most of the first half of the year, to reach the highs described above in an environment of not minor risks with wars in Europe and the Middle East, together with US rates that rose to their highest levels since 2007 and the lowering of central bank rates. With all of the above, it is important to understand that the current levels are high.

As we saw in previous columns, apart from the aforementioned factors, the political risk in the interior of the country was also relevant at the time of understanding the exchange rate level. Although this risk was mitigated a year ago, today we have a plebiscite which, although there is not much talk about its impact on the dollar, its result will undoubtedly have an effect on the dollar. its impact on the dollar, its outcome will undoubtedly have an effect on an economy that is just beginning to show "signs of life", but which is far from what we would like to be able to attract the large amount of flow that came out as of October 2019 and with a pandemic in between.

The good news is that some countries in the region have surprised by electing presidents with pro-market ideas, which could be the starting point to balance a neighborhood that a year ago was almost entirely controlled by contrary ideas. This could be relevant when projecting that, perhaps with a push, some of the remaining economies may have incentives to attract foreign investment. Considering the size of the local economy, a more orderly neighborhood is beneficial for the country. This, coupled with an eventual change in leadership, which unfortunately should not be seen before another year, when the market anticipates the results of the 2025 elections. 

This leaves us with the question of what is the next move we should expect. In the context that we saw levels of 780 during the first half of the year and with a Central Bank that started to lower rates before the rest of the economies, especially the U.S., we should see the exchange rate converge to the lower part of this year's range, which would be more evident when we see a dollar under 850 (the level in the first half of the year). the exchange rate converge to the lower part of this year's range, which would be more evident when we see a dollar under 850 (the level at which the year started), which is a key level from the charting point of view and where the moving average of longer-term cycles is approximately located. Then, if we consider that the current contingency allows us to look for lower levels, it is not crazy to think that this phenomenon is combined with a more propitious regional environment and with political risks already decanted. This will probably be an initial impulse for when the Fed begins to lower rates, an event that would occur in the middle of next year.

All of the above leaves us with the feeling that the worst is likely over (or we are close to being over), so a trip to neighborhoods of 700, levels we saw in early 2017 and in May 2021, and which was a proposed target 6 months ago, is not ruled out.

Gustavo Gallardo Casal, CMT

Sales & Trading Assistant Manager