Chile Peso’s Most Accurate Forecaster Also Its Most Bullish

  • ABN Amro’s Boele sees peso gaining to 640 per dollar in 2017
  • Currency will probably slide in near-term as Fed hikes rates

Chile’s peso will defy Federal Reserve rate increases to end next year back near its highest levels since mid-2015 as rising demand in China and the U.S. bolster the price of copper, according to the best forecaster of the currency.

Georgette Boele, a currency and metals strategist at ABN Amro NV in Amsterdam, has the most bullish forecast for 2017 among the 18 estimates compiled by Bloomberg. The data show she had the most accurate predictions in the third quarter. 

Boele expects the exchange rate to strengthen 4.3 percent to 640 per dollar by the end of next year, a bigger gain than analysts expect on average for any other developing-nation currency. The peso has advanced 6.1 percent this year, after losing 14 percent in 2015, the most since the 2008 financial crisis. That compares with a 24 percent gain in the Brazilian real, the best performance of any major currency tracked by Bloomberg.

“Every currency has its own character,” Boele said. “Chile is dependent on copper exports but it’s also a very cyclical currency.”

Copper will rise to more than $5,000 per ton in London before the end of the year, bolstered by demand from China and an expansion of homebuilding in the U.S., according to Boele. The price fell to a seven-year low of $4,331 a ton earlier this year amid speculation that demand from China would flag. The metal represented 46 percent of all Chilean exports last month, its lowest contribution since 2009.

The currency is likely to weaken to 680 per dollar by the end of the first quarter of 2017 as the U.S. Federal Reserve raises borrowing costs by a quarter percentage-point before the end of the year and another 50 basis points in 2017, according to Boele. Traders in the futures market are pricing in a 19 percent chance of a hike in November and a 68 percent possibility of a move in December.

The "Fed is the crucial factor right now," Boele said.

— With assistance by Wei Lu

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