Fynsa
A recurring question these days is whether or not the exchange rate can consolidate above $1,000 and -at least for the short term- the answer is yes. -at least for the short term- the answer is yes.
Firstly, although internally things look "more stable", the Chilean peso is particularly vulnerable to a new tariff escalation by Donald Trump's government, given its direct link to China, the Chilean peso is particularly vulnerable to a new tariff escalation by the Donald Trump administration, given its direct link to China.
A new trade war with the Asian Giant and redoubled protectionist policies in the U.S., as proposed by Trump, plus a government program that threatens to raise inflation (which could put the brakes on the Federal Reserve's -FED- rate cuts), would be bad news for the CLP. This, above all, because of its high dependence on the price of copper and the rate differential with the US.
Otherwise, we are likely to continue to see a strong global dollar-at least for the first part of the year-as both growth and rate differentials favor the dollar. -at least for the first part of the year, as both growth and rate differentials favor the dollar. The United States will continue to grow above 2.0% and Europe will hopefully reach 1.0%, while the European Central Bank (ECB) is expected to cut rates twice as much as the FED (that is if it continues to cut rates, which today is in doubt).
Chile's rates are among the lowest in the emerging markets. and the fact that "we do not have much rate to offer" against the dollar is a problem, because the foreign flow is very sensitive to rate differentials (today the bets against the peso by non-residents are close to US$7,000). Also, regional peers offer much higher rates than our country, although they are coexisting with their own risks: fiscal in Brazil and tariffs in the case of Mexico.
Finally, we are experiencing a deterioration in terms of trade, as the macro situation in China remains fragile and faces the additional problem of potential new tariffs by the US.The macro situation in China remains fragile and faces the additional problem of potential new tariffs from the US.
So, of the three most important determinants of the exchange rate - dollar, rate differentials and terms of trade - they are not on our side at the moment.
We also do not believe that the peso carries a "large risk premium", as it is fairly in line with international comparables (see attached table), although that could improve later in the year with a change in the political cycle or a "good pension deal".although that could improve later in the year with a change in the political cycle or a "good pension deal".
In terms of levels, this is an area with few references for the market, after $985, only the area of historical highs around $1,060 appears, and those levels are likely to be tested in the first part of the year, as we do not think global trends will change too much (it is a wide reference range, but exchange rate volatility has also increased in these years).
CLP vs Terms of Exchange
CLP vs. Diff. of rates
CLP vs speculative positions
CLP vs. comparables 
Exchange rate technical view
