The dollar continues to detract from Latin American currencies… until when?

First modification: 07/16/2022 – 04:35

The Chilean peso soared as much as 9.8% on Friday as the central bank stepped in to lift the currency from record lows, while a lull in the dollar sparked gains in most other Latin American currencies.

The Chilean currency was heading for its best session in history, all after the central bank announced a $25 billion intervention in the foreign exchange market to support the currency, which had fallen to record lows due to the rally in the dollar, the drop in the price of copper, Chile’s main export, and “local uncertainty”.

Fears over an aggressive move by the US Federal Reserve this month and safe-haven appeal amid recession concerns have sent the dollar soaring to its highest in two decades, while dragging down major currencies. Latin America.

“The intervention of 25,000 million dollars in a country like Chile, where the GDP is not very large, is remarkable. There is no doubt that it will outperform after the program,” Marcos Casarin, chief economist of LatAm in Chile, reacted. ‘Oxford Economics’ in Mexico.

“We found the Chilean peso undervalued by more than 20% prior to this announcement, so the discount is too big. We understand your political risks revolving around the new constitution, but at the same time the fundamentals don’t look too bad.” .” he added.

How are the rest of the Latin American currencies?

Another of the most undervalued currencies in the region is the Colombian peso, which has lost almost 10% of its value against the dollar so far this year. The internal political uncertainty, with the arrival of the first left-wing president in Colombian history, served as fertilizer to depreciate the Colombian peso.

But by the end of the week, as oil prices recovered, the Colombian peso firmed 3.06% to 4,349.6, recovering further from the record low of 4,658.02 hit earlier this week.

For its part, the Brazilian real gained 0.5% in volatile operations.

However, the heavily controlled Argentine peso fell 0.16%. According to a ‘Bloomberg’ report, Argentina’s central bank kept its reference interest rate at 52, while inflation hit 64% in the 12 months to June.

Latin American currencies will have volatile months, economists say, as the dollar remains the biggest bet in times of economic uncertainty.

with Reuters