Chile: Peso weakens in March as Covid-19 prompts emerging market sell-off
March 16, 2020
The Chilean peso traded at an all-time low over the past month, as the escalation of COVID-19 epidemic rattled commodity-linked currencies. On 13 March, the peso traded at CLP 839 per USD, a 5.4% depreciation from the same day last month. On a year-on-year terms, the CLP was down 20.3% and 10.4% on a year-to-date basis.
While January’s steep fall in copper prices weighed on the peso throughout February, the currency continued its downward spiral in March as the spread of coronavirus and sinking oil prices prompted capital outflows from emerging markets. Most Latin American currencies were affected by the aggressive sell-off, including Brazil, Colombia, Mexico and Uruguay.
In turn, at its special meeting on 16 March, the Central Bank announced it will extend its currency-market intervention program until January 2021 in an attempt to insulate financial markets and stabilize the peso from the Covid-19 pandemic. The program was initially devised in November to mitigate the impact of October’s protests on the currency and was slated to last until May 2020.
Looking ahead, the peso is expected to recover as the spread of the virus subsides and on a pick-up in Chinese manufacturing activity. That said, the timing of the recovery depends on how quickly the world quells the pandemic and gets demand back on track. Meanwhile, additional downside risks to the peso’s outlook stem from the uncertainties surrounding April’s constitutional referendum.