Chilean Peso Falls against USD & Volatility Declines to Lowest Value in 15 Years

The major currency of Chile, Chilean Peso has dropped to the lowest value in the last 6 weeks as China tightened its monetary policy, Italian political gridlock remained and US budget cuts started to take effect – thereby diminishing the economic prospects of the entire world. Peso’s decline however was low, as it slid down by less than 1% against USD. Each USD currently costs 474.33 Chilean Pesos. This marks the currency’s weakest value since 16th January. Chilean Peso actually regained a bit on today, as at one point of time, it went down to as low as 475.34 per USD.

According to the Currency Trader of Banco Santander Chile, Alejandro Araya, Chilean Peso is all set to weaken even further. With the US sequester, unresolved political situation in Italy and concern over Chinese data, Peso will go down further and may be traded as low as 476 per USD.

The 30-day volatility in the Chilean Peso declined to its lowest level within the last 15 years. From 16th January onwards, the currency, incidentally, has been trading within the range between 475 and 470 Chilean Peso per USD.

The investors are also concerned over the fact that the Central Bank of Chile may intervene to slow down the appreciation of the currency. This is offsetting a steady target lending rate of 5% and also the stronger than average economic growth. If compared to January, 2012, the economy of Chile has increased by 6.5% in January, 2013. Though no official figure has been released, this is the prediction of most of the analysts. Incidentally, the average growth rate for the last 5 years was at around 4%.

The traders in the forwards market for the index-linked accounting unit of Chile named as unidades de fomento, has already projected of a 1.54% annual inflation rate in February and 1.73% for the current month. Incidentally, among the 7 major Latin American economies, the inflation is the slowest for Chile.

Copper is the main export of Chile. China and US are the two biggest consumers of Copper in the world. Hence, any news impacting economies of both countries is bound to have a lasting impact on the economy of Chile as well. According to investors, Chile may have been helped a bit, if the Italian elections would have a result.