USD/CLP forecast: Chilean peso off all-time lows after agreeing IMF credit line deal

The Chilean peso (CLP) has been weakening this month after rebounding in August from all-time lows reached against the US dollar (USD) in July. The dollar has gained around 8% against the peso since the start of year, having climbed as much as 23.4% at the peak.

What has been driving the direction of the USD/CLP exchange rate? Will the pair return to the highs, or will the Chilean peso strengthen? 

In this article, we look at the pair’s recent performance and the USD/CLP forecast outlook from foreign exchange (forex, FX) analysts.

What drives the USD/CLP rate?

In forex trading, the USD/CLP pair refers to how many Chilean pesos – the quote currency – are needed to buy one US dollar – the base currency.

In its role as the world’s reserve currency, the value of the US dollar is driven by sentiment on the health of the global economy as well as the US economy. The dollar acts as a safe haven asset in a risk-off environment as investors look for ways to protect their money from economic uncertainty. 

The dollar has climbed to 20-year highs against a basket of other currencies in 2022, in response to economic and geopolitical uncertainty as well as an aggressive cycle of interest rate hiking by the US Federal Reserve (Fed) in response to high inflation.

The Chilean peso was pegged to the US dollar but has been a floating currency since 2001. The peso is restricted to be only exchanged and used in Chile, although it can be traded on foreign currency exchanges.

The Chilean peso has historically been one of the best performing currencies in Latin America, reflecting Chile’s economic stability. But protests in 2019 and 2020 against social inequality made investors cautious and the value of the peso against the US dollar began to decline.

The country elected a new President, Gabriel Boric, in December 2021, but rejected a new constitution in a referendum held on 4 September.

USD/CLP rises on dollar strength, political unrest

The USD/CLP rate rose from 667.38 at the start of 2019 to 781.35 a year later, reaching 847.97 by the start of April 2020, as the US dollar rallied. The rate pulled back to 729.66 at the start of 2021 and fell further to 709.37 at the start of April 2021.

But the peso weakened again. The pair rose to 851.22 at the start of December 2021, when the elections were held. In 2022 the USD/CLP pair trended lower, down from 851.80 in early January to 778.01 on 25 March, up to 867.95 in May and pulled back to 811.81 in early June.

The USD/CLP then soared to a record high of 1,050.76 on 18 July, in part on US dollar strength and a collapse in prices for copper, one of Chile’s major exports. On 14 July, Chile’s central bank, the BCCh, announced a $25bn intervention to support the CLP. That included $10bn in spot dollar sales, $10bn in foreign exchange hedging sales and a foreign exchange swap programme to provide up to $5bn of liquidity.

The programme began to take effect as USD/CLP retreated to a two-month low of 875.76 on 12 August. But the pair then moved up to 944.50 a week later, on a rebound in the dollar and the release of data showing Chile’s economic growth stalled in the second quarter with inflation at a 28-year high.

In an unexpected move, on 29 August the International Monetary Fund (IMF) announced that it had approved a two-year $18.5bn Flexible Credit Line for Chile as a “precautionary” measure to provide “substantial insurance against a broad range of risks, including from a possible abrupt global slowdown; commodity price shocks; spillovers from Russia’s war in Ukraine; or a sharp tightening of global financial conditions”.

The peso demonstrated some strength at the start of September, moving the pair back to 878.72, but has weakened again this month, returning the rate to 922.75 on 19 September. 

“The Chilean peso (CLP) has experienced an almost secular depreciation against the US dollar since April 2022, recently exceeding CLP 880. For many, this reflects the appreciation of the US dollar in the wake of an accelerated rate of policy normalisation by the Federal Reserve. In our view, however, there is an idiosyncratic component in the CLP depreciation that is evident in a real exchange rate (RER) that in June reached its second highest level since the floating exchange rate regime was implemented in 2001,” according to analysis by Canadian bank Scotiabank. 

Analysts at Spanish bank Santander noted: “In such a context, the market continues to discount further rate hikes at the coming meetings (up to 11% by year-end) and a slow easing cycle throughout next year (up to 8.50% by December 2023),” and added: “Net net, the current account deficit, the volatile sentiment prevailing in global markets, and local political uncertainty have made the CLP an extremely fragile currency in recent months.”

With the Fed expected to continue raising interest rates, supportive to the dollar, what is the outlook for the USD/CLP exchange rate? Could the pair set fresh highs?

USD/CLP forecast: What’s next for the Chilean peso?

Analysts at Dutch bank ING were cautious in their outlook for the peso, with their latest USD/CLP forecast for 2022 indicating that the pair could rise from 925 at the end of the third quarter to 950 by the end of the year. 

According to analyst Chris Turner, analysts are “concerned about Chile's peso”. 

_{Source: ING, Scotiabank, Societe Generale, Trading Economics}

At the time of writing, the USD/CLP forecast from Trading Economics expected that the pair could trade at 951.14 by the end of the third quarter and rise to 1,044.54 in 12 months’ time, based on global macro models and analysts’ expectations.

French bank Societe Generale projected that the pair could trade up from 922 at the end of 2022 to 987 by the end of 2023 and above 1,000 in 2024. The bank’s USD/CLP forecast for 2025 shows the pair trading at an average of 1,015.10 and then retreating to 975.10 in 2026. Analysts have yet to issue a USD/CLP forecast for 2030.

Scotiabank’s USD/CLP prediction was more bullish on the value of the peso, showing the pair moving down from 870 for the remainder of 2022 to 800 by the end of 2023. 

If you are looking for a USD/CLP forecast to decide how to trade the pair, it’s important to remember that currency markets are highly volatile, making it difficult for analysts to make accurate long-term predictions. 

We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.

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