Chilean Peso Rally Reflects Copper Rally
Claus Vistesen reports on the strong performance of the Chilean peso, something which he appears to attribute to the Chilean government saving the windfall from the previously very high price of copper (copper is Chile's main export product).
A more obvious and important factor would however be the fact that after a dramatic price decline late last year, the price of copper has recovered, rising some 40% in 3 months.
A more obvious and important factor would however be the fact that after a dramatic price decline late last year, the price of copper has recovered, rising some 40% in 3 months.
posted by stefankarlsson at 11:57 PM
3 Comments:
You do not mention that Chile has a low domestic inflation rate which most certainly is a necessary precondition for a stronger exchange rate.
Imagine what the situation would be like given a 600% per annum inflation rate. A high copper price would in that situation not help much.
Have a look at this.
http://flavianopolis.blogspot.com/2008/07/macflationsligan.html
There are speculations that this rally in copper is not sustainable, just based on Chinese restocking and the price should drop in summer.
The Price level issue is hardly relevamt in explaining why the peso lost more than a fourth of its value during the second half of 2008, then gained more than 10% in early 2009, only to lose a few percent in recent weeks. Thses exchange rate movements do however correlate perfectly to the movements of the price of copper.
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