Chile peso to hold stable as economic and political worries fade: Reuters poll By Reuters

By Gabriel Buren

BUENOS AIRES (Reuters) – The Chilean peso is poised for a period of stability as economic and political concerns continue to fade, a Reuters poll showed, validating the central bank’s decision to cancel an intervention program implemented last year to calm market turmoil.

In July last year, the peso fell to a record low of 1,050 against the US dollar in reaction to a sharp drop in the price of Chile’s largest export, which added to concerns about a proposed reform of its market-friendly constitution.

But the peso recovered in the second half of 2022 and has held nearly 800 since the beginning of this year thanks to the rejection of constitutional changes as well as improved demand for the metals after China reopened its economy.

The currency is expected to remain near 800 in the coming months, trading at 811 per dollar in one year, where it was on Tuesday, according to the median estimate of 14 foreign exchange experts polled from April 28 to May 3.

“We are building on the peso against its emerging market peers, while adjusting for imbalances in Chile amid a supportive global environment,” Barclays (LON:) foreign exchange strategists wrote in a report last week.

Another positive factor for the peso is the refusal of lawmakers to move forward with the tax reform devised by the government of President Gabriel Borik to fund reforms in the pension and healthcare systems.

Likewise, technical and political challenges could delay for years any progress on Borek’s idea to nationalize the Chilean lithium industry, which has the world’s largest reserves of the metal.

Barclays said the central bank’s move last month to start cutting its dollar sales operations program was “gradual in nature, and we believe it should have limited impact once the news is digested.”

By contrast, the Argentine peso’s outlook continues to worsen, facing a further 50% decline to 450 against the US dollar in one year in a highly regulated official market as the economy teeters on the brink of a deeper crisis.

In Brazil, sentiment towards President Luiz Inácio Lula da Silva’s financial plans remains broadly neutral, with the Brazilian real trading 2.0% weaker at 5.14 per dollar in one year compared to 5.04 on Tuesday.

In Mexico, the peso is set to drop 6.7% in the 12-month period to 19.25 per dollar from 17.96 this week, reflecting a correction for inflation. It has risen year-to-date by 8.4%, while the real is up 4.9%, the Chilean peso is down 4.6%, and the Argentine peso is down 21%.

(For other stories from the May Reuters FX Poll:

(Reporting and polling by Gabriel Boren in Buenos Aires; additional polling by Sarupia Ganguly and Sujith Pai in Bengaluru; Editing by Sharon Singleton)