This year the evolution of the local CT has left no one indifferent. After registering highs around 1060 a year ago, we see how the decrease in political risk and a transversal fall in the dollar multilaterally took us most of the first half of the year to the vicinity of 800.

The recent rate adjustment in Chile, with the opposite rise in the US rate, has explained much of the rise experienced in recent weeks to the 850 zone. However, it seems fair to ask whether this upward trend of the dollar will continue or whether these are levels to exit long positions or perhaps bet on falls. For this it is important to analyze from two perspectives: internal and external.

In this dimension we see that the fall in local rates, with an expected level towards the end of the year around 8% from the current 10.25%, would be for good reasons, which is a stabilizing inflation and reaching 4.0-4.2 per annum by the end of the year. If one considers the above, and in view of the fact that copper is still around 4.0, we should see dollar sales flows. Assuming this reality to be true, we should see an exchange rate closer to 800, and perhaps lower levels.

Probably the counterpoint is the speed with which the spread in the aforementioned rates may fall. If you think back a bit, when last year the Central Bank of Chile took the rate to close to 10%, the dollar remained a buyer. In this scenario, the reasons for the rate hike were the bad ones. With the above, the important thing is that it is not enough to see the rate hike on its own, but also the reasons behind it.

In addition, if we compare the local currency with its Latin American peers, we see that so far this year, the Chilean Peso has experienced practically no variation, compared to the 10% appreciation of the others, the Chilean peso has experienced practically no variation, compared to the 10% appreciation of the others. This reinforces the idea that the depreciation from 800 pesos for the Chilean currency is the initial impact after the rate hike announcement discussed above.

Now, from a technical point of view, a return to 830-820 should not be surprising, as long as 850 remains north. On the contrary, if we confirm above this level, which was a relevant support zone for much of last year, we could advance to the vicinity of 900, such as inflation not converging as expected, or the FED raising rates indiscriminately. This last point becomes more difficult with a market that sees current rate levels as terminal, with analysts arguing that, past a point, further increases have marginal effects on inflation.

Gustavo Gallardo Casal, CMT

Sales & Trading Assistant Manager