Chilean Peso Breaches Critical 935 Level as Copper Prices Retreat: March 28

The Chilean peso (CLP) is trading at 936.33 per USD as of 7:38 AM GMT this morning, showing significant weakening compared to yesterday’s close.

This represents a 1.22% depreciation from Thursday’s rate of 925.07, pushing the peso to its weakest level in over two weeks. The peso suffered substantial losses during overnight trading as Asian markets responded to renewed dollar strength and declining copper futures.

This sharp depreciation follows yesterday’s session (March 27), when the peso had actually strengthened to 925.07, representing a 0.4% appreciation from the previous day’s close.

The currency’s overnight weakness began during late U.S. trading hours and accelerated during the Asian session, with trading volumes reaching approximately $320 million in the early hours – 15% above the average for Asian session trading this month.

Key Market Drivers

Copper Price Volatility: After stabilizing around $4.30 per pound earlier this week, copper futures have retreated to $4.22 in overnight trading, putting significant pressure on the peso. As the world’s largest copper producer, Chile’s currency maintains a strong correlation with the industrial metal’s price movements.

Federal Reserve Hawkishness: “The latest comments from Federal Reserve officials suggesting potentially fewer rate cuts this year continue to weigh heavily on emerging market currencies, with the Chilean peso particularly vulnerable this morning,” notes Carlos Rodríguez, Chief Economist at Banco de Chile in comments released early today.

ETF Outflows Accelerate: Foreign exchange ETFs tracking Chilean assets have reported heightened outflows of approximately $35 million over the past 24 hours, significantly intensifying the negative trend that began last week.

Technical Resistance Breach: “The break above the critical 935 level overnight signals potential for further peso weakness, with traders now targeting the psychologically important 940 barrier,” explains Patricia Núñez, senior technical analyst at Santiago Capital.

Trading Volumes and Market Activity

This morning’s session has started with elevated trading volumes, with approximately $280 million exchanged in the first hour – a 33% increase from yesterday’s activity during the same period.

Market maker Banco Santander Chile reports narrower bid-ask spreads compared to yesterday, indicating increased trading conviction. “We’re seeing spreads about 10% tighter than normal as market participants appear convinced of the dollar’s strength today,” notes Fernando Valenzuela, Head of FX Trading at Banco de Chile.

Technical Analysis

From a technical perspective, the USD/CLP pair has now definitively broken above its established March range of 923-945 that analysts had been monitoring. The 14-day relative strength index (RSI) has increased to 58.7 from yesterday’s 52.3, showing increased bullish momentum for the dollar against the peso.

The currency pair is now trading well below both its 50-Day Simple Moving Average (947.00) and 200-Day SMA (960.04), though the gap has narrowed significantly with today’s move.

“With the peso weakening past 936 this morning, we’re seeing a critical technical breakdown. The 935 level that had been resistance has been conclusively breached, opening the door to test 940 and potentially 945 in coming sessions,” observes Martín Reyes, Chief Technical Strategist at BCI Capital in a morning note to clients.

Market Commentary

Analysts have quickly adjusted their outlook given the morning’s sharp depreciation. “The peso’s resilience we witnessed earlier this week has evaporated as global risk sentiment deteriorates and dollar strength reasserts itself,” states Eduardo Martínez, Chief Economist at LarrainVial.

Central Bank sources speaking anonymously to Reuters suggest increased monitoring of currency markets but indicate no immediate intervention is planned unless volatility becomes extreme.

“Today’s move is significant but still within the range of normal market fluctuations. The Central Bank remains vigilant but comfortable with market-determined exchange rates within reasonable volatility parameters,” the source indicated.

Market Outlook

Trading Economics has revised its forecast for the Chilean peso to 939.50 by the end of this quarter, reflecting today’s weakening. However, analysts remain divided on the longer-term outlook.

“While today’s weakness is concerning, the fundamental story for Chile remains largely intact. If copper prices stabilize again and global risk appetite improves, the peso could recover some of today’s losses next week,” suggests Miguel Sánchez, FX strategist at Banco Santander Chile.

For today’s session, traders expect the USD/CLP to trade within the 934-942 range, with particular attention on upcoming U.S. economic data releases scheduled for later today that could further influence dollar strength against emerging market currencies.

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