USD/CLP: Peso to face downside pressure due to elections and FED tapering – MUFG

In July the Chilean peso weakened from 728.81 to 760.81 against the US dollar. Economists at MUFG Bank expect CLP to remain under pressure in the second half of this year. Nonetheless, there is room for significant appreciation afterwards.

Significant reduction of covid cases in July allowed easing of restriction measures

“The number of COVID-19 cases reduced significantly during July, which reflects the advanced stage of vaccination and lockdown measures. In such a context, the government decided to ease restriction measures in several parts of the country, which bodes well for the pace of economic recovery ahead. Anyway, the spread of Delta variant abroad still brings uncertainties on the COVID scenario potentially adding some pressure on the CLP.” 

“On the other hand, despite the dovish tone by the BCCh, there is expectation of further hikes at a gradual pace, which along with the room for higher copper prices offset somewhat downward pressures on the CLP.”

In the 4Q the CLP path will be influenced by the general elections scheduled in Nov-Dec with the risk of an election of a populist candidate. This risk reduced somewhat after the defeat of a communist candidate in primary elections to his more moderate rival. Still, the CLP might depreciate slightly amid expectation of FED tapering.” 

“In the first half of 2022, the CLP might appreciate on the back of more consolidated global growth benefitting Chilean exports.”