Chilean peso leads losses after CPI on consensus: Andes FX

(Bloomberg) — The Chilean peso is leading losses in global currency markets on Friday, consolidating its position as one of the worst performing major currencies this week after inflation surpassed expectations, putting the central bank in a tight spot after its shift to a moderate stance last month.

The Chilean peso fell 1.3%, accumulating a 4% loss on the week, the second largest depreciation after the Hungarian forint.

Consumer prices rose by 9.4% year-on-year in March, exceeding the estimate of 8.7% and 7.8% the previous month. Inflation accelerated more than expected after the central bank decided last month to apply the minimum expected increase, with a rise of 150 basis points, and pointed out that the next rate movements will be smaller.

The contrast leaves investors with the opinion that the central bank may be lagging behind, and swap rates have begun to discount that monetary policymakers will have to extend the cycle longer than expected to control price increases.

The two-year camera rate rose 34 basis points, the largest variation among Latin American swaps, which are advancing in line with the increase in US Treasury yields.

The Chilean peso is heading to test its 100-day moving average near 818 per dollar, which is the strongest technical indicator of the currency and could attract dollar sellers.

Finance Minister Mario Marcel said Thursday that the economic plan proposed by President Gabriel Boric will not affect the 2022 fiscal balances, as the money destined to boost sectors that have lagged behind in the country's economic recovery will come from the reallocation of government funds and remnants of the previous year.

Investors remain attentive to discussions in Chile's Constitutional Convention, although the text has not evolved significantly in recent days.

The Peruvian sun, for its part, fell 0.5%, following the losses of its emerging market peers after the central bank raised rates half a percentage point to 4.5%, as analysts expected. Officials will hold a press conference on Friday at 1 p.m. Eastern time.

Peru's inflation, which exceeds the target, has provoked violent protests that led the government to decree a curfew in the country's capital earlier this week.

Officials had no choice but to maintain their aggressive stance after Lima's March CPI, released on April 1, showed inflation accelerating to 1.48% compared to the previous month, well above the estimate of 0.92% and 0.31% in February. Protests are affecting the supply of food and other materials to major cities, further increasing inflationary pressure. According to a recent poll, President Pedro Castillo has a disapproval rate of 76%.

The Colombian peso, meanwhile, depreciated 0.2%. The currency remains confined between the key level of 3,730 and the 200-day moving average of 3,865 to the dollar, as the break of the lower bound of the range earlier this week failed to generate bullish momentum.

On the political front, the most recent poll shows that Colombia's left-wing presidential candidate, Gustavo Petro, is ahead of Federico “Fico” Gutiérrez in the first round of elections, with 34% of voting intentions, compared to 23% for Gutierrez. In a probable runoff, Petro faces a technical draw with any of the other top three candidates, making the election result too tight.

(Some of the information comes from FX traders familiar with the transactions who asked not to be identified because they are not allowed to speak publicly.)

Chilean Peso Leads Losses After Above-Estimate CPI: Inside Andes

Davison Santana is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended to be investment advice.

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