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BMO See Medium-Term USDCLP Selling Opportunity

CHILE
  • The past two years has been a wild ride for a currency that was once considered an emerging market safe haven. The wild ride continued on yesterday’s open with USDCLP gapping 25 pesos to trade at roughly 870. That is somewhat less extreme than what seemed to be the expectation on Friday.
  • At that point, the consensus seemed to be that a Boric win in the presidential contest would lead to USDCLP gapping to roughly 900. While Boric can claim somewhat of a mandate from the vote results, he faces several limitations on how much he can change Chile's economic system.
  • Foremost is Chile's one-term (of 4 years) constitutional limitation. He also will need to deal with somewhat of a divided legislature in which his party has limited influence. Lastly, he is dealing with a populace that may want greater equality, but that populace is extremely wary of following a path similar to other Latam countries that have made similar political shifts over the last 25 years.
  • BMO would view this spike as a medium-term selling opportunity with a target for USDCLP to revert back down to somewhere in the low 800s a year from now. With CLP's implied yields coming in well north of 5%, there is also the opportunity to earn considerable carry.
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