Chilean peso remains close to record lows

3:20 PM December 21, 2021

The Chilean peso took a hit yesterday, dropping to the lowest level since March 2020 (against USD). The move was a response to the outcome of the second round of presidential elections in Chile that was held on Sunday, December 19. Elections were won by Gabriel Boric, a left-wing candidate. A 35-year old became the youngest President of Chile in history. The Chilean peso was underperforming the US dollar for months on the back of two reasons. Firstly, US dollar strengthening. Secondly, rising odds that Boric will win elections. Why was the market afraid of Boric winning the presidency? Because of his policy plans. Among policy plans of Gabriel Boric one can find:

  • Increasing taxes

  • Ending private pension system

  • Not approving new mine projects that will harm environment

While the impact of increasing taxes and ending private pensions will be mostly limited to Chile, plans to take a more environmentally-friendly approach to new mine projects may have some global implications. Chile is the world's largest copper producer and limiting new mine projects in the copper-rich region may impact global supply going forward. However, it is too early to judge how big the impact of new policies will be on the copper market.

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USDCLP jumped to the highest level since March 2020 following results of presidential elections. The pair finished yesterday's trading around 0.6% below all-time highs. A slight relief can be spotted today with USDCLP launching trading around 0.8% below yesterday's close. Nevertheless, the pair continues to trade above the 865 resistance zone. Source: xStation5

As Chile is the world's largest copper producer, Chilean peso was highly correlated with industrial metal prices (blue overlay - inverted USDCLP). However, this correlation has broken down after the emergence of Covid-19 pandemic with politics and social unrest play a big role in the underperformance of Chilean currency. Source: xStation5

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