The exchange rate started the week with a strong increase, which at one point rose from almost $20 at the start of Monday’s session. The US currency ended the day up $16.5 from Friday’s close, settling at $861.6, reaching levels seen in mid-May.
The reason? Investors’ appetite for the dollar increased after May’s high CPI in the US, as a safe-haven asset amid expectations of a firm Fed rate hike Since Friday, the dollar has appreciated of more than 37 dollars on the Chilean foreign exchange market.
Renta 4 Director of Studies Guillermo Araya says that “Once the U.S. inflation figure is known, the market discounts more aggressive rate hikes, which translates into multilateral appreciation of the dollar.”
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In this line, the head of studies trade de Capitaria, Ricardo Bustamante, explains that after the data on US inflation, that “would put pressure on the Fed to continue an aggressive rate hike process. This is generating an appreciation of the dollar generally, while also impacting commodities linked to the business cycle, such as copper, as higher rates around the world put pressure on economic activity.
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On Wednesday, the two-day Fed meeting ends and a more aggressive strategy is observed, “perfectly, the dollar would continue its rebound, although after the strong advance, a very short-term correction cannot be ruled out,” says Bustamante.
An example of the strength of the US currency is that the dollar index -which measures the greenback with the main world currencies- progressed by 1.02%.
Libertex analyst Ángel Rubilar points out that The Chilean peso “is the second most weakened currency against the dollar in the world, being surpassed only by the Brazilian real, and with its largest daily increase in the last four months”.
Admiral Markets chief analyst Renato Capos points out that “Sustained price increases in Chile, the United States, and around the world force us to view the US currency as a safe haven against currencies that may depreciate due to a macroeconomic situation.”
Copper is also not indifferent to this scenario. Three-month red metal contracts fell 2.21% to settle at US$4.19. While on the London Metals Exchange, copper fell 2.59%, to reach 4.214 US$ per pound.
Rubilera says it’s the most aggressive fall in exactly one month. “This decline in our main export raw material also helps to understand the depreciation of the Chilean peso and, consequently, the appreciation of the greenback in our country,” he mentions.
XTB Latam senior analyst Juan Ortiz comments that “it has seen declines in its price following the increase in Covid-19 cases at the Asian giant, which puts investors on alert, impacting Copper’s future outlook due to fears that China will stick to its zero Covid-19 policy if cases continue to rise.
Campos believes that “after hitting the range of all-time highs again, we began to look at an increase in the likelihood of revisiting the highs to $904.”
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