After a first quarter marked by volatility, the Chilean peso (CLP) is back below $950. After the announcement of new tariffs and their consequent aftershocks -which drove the exchange rate to the border of $1,020-, calm is returning to the market, with negotiations suggesting the possible end of the so-called "trade war".

It is worth reviewing the recent context: towards the end of last year, the CLP was trading below $900. However, following Iran's attacks on Israel, there was strong buying pressure, pushing the exchange rate up again. Although many of the factors behind this rise have now been - or are in the process of being - resolved, we still see a dollar significantly above the levels of the 2023 close.

This begs the question: what is missing to see a more sustained appreciation of the local currency?

The most obvious answer is the stability. Uncertainty remains the main brake on a larger exchange rate correction. The US president is seen by the markets as an uncertain factor: although his campaign pointed to a tough tariff policy towards China, few anticipated an aggressive stance towards third countries. Such was the surprise that the market experienced sharp falls in risk assets. Thus, it is clear that a simple trade truce is not enough: clearer signals of global stability are required.

On the other hand, the U.S. administration also promised rapid progress in the Ukraine-Russia conflict, something that has failed to materialize, raising doubts about President Donald Trump's ability to lead complex peace processes.

On the local front, the elections in Chile could bring a political shift to a more pro-market approach. This could contribute to an improvement in public finances and, eventually, in the perception of country risk.

In summary, although the dollar is still at historically high levels against the Chilean peso, there are grounds to think about a correction in the medium term. With copper trading steadily above US$ 4.5, a possible rate cut in the US and positive signals on the external front, we could see a break of relevant supports: first $930, then $900. If this scenario is confirmed, the next technical target would be $750 per dollar.

Gustavo Gallardo, CMT

Fynsa Money Desk Trading Manager