Central Bank of Chile to intervene on FX market

11:00 am 29 November 2019

  • USDCLP hit fresh all-time high yesterday

  • Central Bank of Chile announced major intervention on the FX market

  • Industrial production data for protest-hit October to be released at 12:00 pm GMT

Social unrest over inequality is causing turmoil in the Chilean economy and on the Chilean peso market. Country’s currency hit a fresh all-time low against the US dollar yesterday. Central Bank of Chile vowed to respond by intervening directly on the FX market. The Bank said it will sell as much as $10 billion on the spot market in order to stabilize the situation. Moreover, $10 billion of currency hedges will also be provided. Scale of intervention can be considered significant as the announced spot market intervention amounts to a quarter of the country's FX reserves. History shows that market reaction could be significant as well as the previous intervention of Chilean central bank, in 2011, caused a 4.8% move on CLP on the first day. However, back then aim of the intervention was to weaken the currency. Apart from that, it should be noted that until the situation in the country is settled, there is a risk that such intervention will have only a short-term impact. Industrial output data for October will be released today at 12:00 pm GMT and it will reveal the impact of half a month of protests on the economy. A decline of 6% YoY is expected. A point to note is that announcement of FX intervention came after CLP market closed yesterday and today’s data will be released during market opening. Having said that, traders should stay on guard as major moves on USDCLP may occur at the start of trading (12:00 pm GMT).

USDCLP continues to surge amid social unrest in Chile. The pair reach fresh all-time high yesterday but the upward move was halted in the vicinity of the 161.8% exterior retracement of the correction from November 14-18. Traders should keep on guard as volatile swings may occur at the launch of today’s trading (12:00 pm GMT). Should the central bank’s intervention take effect, the first support to watch can be found at psychological 800 handle. Source: xStation5

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