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Solid Reversal Lower for USDCLP, BBVA on BCCh Terminal Rate

CHILE
  • Despite the 2.5% decline for copper prices on Tuesday, USDCLP has had a solid 1% reversal lower, with the pair hovering just above the 900 mark at typing. Lower-than-expected JOLTS job openings in the US and the associated extension lower for US yields has likely assisted the move.
  • Interestingly, BBVA have noted that short positioning in the CLP appears to be creeping back up after cleaning out following the terms-of-trade shock last month.
  • They still expect the BCCh to continue its policy rate normalisation, and likely cut by 50bp in the upcoming meeting, while targeting a terminal rate at its estimated neutral level of 4.00% by year-end 2025, lower than current market pricing of between 4.75% and 5.00%.
  • BBVA expect the market to drive pricing back towards a terminal rate of between 4.50% and 4.75% for now, which is likely to push back against the recent CLP strength and encourage a rebuilding of short positions.
  • Following yesterdays below expectation economic activity data, focus turns to Friday’s May CPI print, where the chained annual measure is expected to rise slightly to 4.1% from 4.0% in April.
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