Chilean peso rebounds following government intervention announcement
The Chilean peso rebounded sharply, as the dollar reversed its morning gains and plunged more than 15 pesos following a government foreign exchange intervention announcement. The currency shift coincided with rising copper futures and shifting monetary policy expectations in the United States.
Government Intervention Triggers Peso Recovery
The dollar opened trading higher, climbing toward the 995-peso level during early morning operations in the Chilean foreign exchange market. By mid-morning at 10:17 local time, the exchange rate reversed course to trade at 975 pesos, marking a drop of 15.58 pesos from Friday’s close, according to reporting.
The reversal followed an announcement by the Budget Directorate that the government will execute dollar liquidations totaling up to 600 million dollars weekly throughout October. Rodrigo Castillo, general director at BeFX, noted that the signal carries substantial weight despite the nominal size of the intervention. The dollar-peso reacts strongly to the announcement of dollars by the treasury of up to 600 million dollars,
Castillo stated, pointing out that the policy demonstrates official concern with maintaining the currency in a reasonable range.
Castillo added that the 975-peso floor serves as a critical technical level. Market observers will watch throughout the week to determine whether non-resident investors reduce their short positions against the Chilean peso in response to the treasury signal.
Copper Futures Rise as Fed Rate Hike Expectations Fade
A stronger dollar typically encumbers dollar-denominated metals for buyers using alternative currencies. Despite that currency headwind, Comex copper futures rose 1.37 percent on Monday to 6.63 dollars per pound, marking the second session of gains.
Sandeep Daga of the Metal Intelligence Centre attributed the copper price strength to broader upward momentum in equity markets alongside receding expectations of a Federal Reserve interest rate hike. The copper is favored by the rebound in the stock markets, as the possibility of a Fed rate hike in October is fading,
Daga said.
Weaker-than-expected employment data released the previous week shifted operator sentiment significantly. CME FedWatch data indicated that the probability of a United States interest rate increase in October dropped to 18 percent, down sharply from 71 percent just one week prior. Higher borrowing costs generally threaten economic growth and diminish industrial demand for growth-sensitive metals like copper.