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Initial CPI-Driven USDCLP Strength Reverses

CHILE
  • There was a decent gap higher on the open for USDCLP to 957 following the below-expectation inflation data, however, those initial gains have entirely been eroded over the past hour. The pair is now ~1% off its highs at 948, assisted by the most recent broad USD downtick. The front-end of the Camara swaps curve has shifted a little lower in unison, with the underperformance of the belly and long end of the curve more reflective of moves in core rates.
  • Analysts point out that the inflation results are in line with central bank forecasts for headline and core inflation to hold above the midpoint of the target range and should not alter the more cautious/hawkish stance of the BCCh.
  • Prior to the data Goldman Sachs noted the most recent appreciation is warranted. The fact that the central bank is reacting to the shift in data is a currency positive event, especially as it comes after months of dovish surprises to expectations. They note it is key that this shift is happening at a time when (i) global growth is showing signs of a tentative inflection with global manufacturing PMI indices rising (including in China) and (ii) relatedly, copper prices have rallied sharply, supporting Chile’s terms of trade.
    • GS think there is more room for the Peso to catch up and continue to appreciate if the current macro environment extends.
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