The Chilean peso is appreciating relatively amid mixed signals from the domestic economy and relevant external factors.
The recent drop in the Consumer Price Index (CPI), which contracted by 0.4% monthly in February, bringing annual inflation to 4.7%, provides some relief to the Central Bank of Chile, although persistent inflation in key sectors such as transportation and housing continues to warrant caution.
The current stability of the Chilean peso is largely explained by market expectations regarding the decision the Central Bank will make in its March meeting.
Most forecasts agree that the institution will keep interest rates unchanged, which serves as support for the local currency against the U.S. dollar.
However, the Chilean economy faces significant structural challenges stemming from its historical dependence on commodities, particularly copper.
In this context, the trade deficit of USD 266.65 million recorded at the end of February is concerning. Despite starting the year with a promising surplus, the decline in copper exports highlights the country’s vulnerability to changes in foreign trade. However, the recent increase in imports suggests a slight rebound in domestic demand, providing a mild optimism regarding internal economic development.
On the external front, the economic situation in the United States continues to directly influence the exchange rate dynamics of the Chilean peso. The February non-farm payroll report showed job creation below expectations (151,000 versus 160,000 projected), along with a rise in the unemployment rate to 4.1%. These data have fueled expectations of a relatively looser U.S. monetary policy.
If Powell later signals a more flexible monetary stance, this could lead to a weaker dollar, consequently benefiting the Chilean peso. Conversely, a hawkish message would increase pressure on the Chilean currency, strengthening the U.S. dollar’s position and generating greater exchange rate volatility.
Thus, while the domestic outlook presents encouraging signs, trade volatility and international uncertainty will remain key factors to monitor in the trajectory of the Chilean peso over the coming weeks.
