The USD/CLP exchange rate formed a triple-top pattern even as the divergence between the Federal Reserve and Chile’s central bank continued. It topped at 993.10 this year and has now retreated to a low of 960. 

The US and Chile seem to be diverging on interest rates, which explains why the Chilean peso has plunged by over 22% from its highest swing in 2023.

In Chile, the central bank has delivered six rate cuts since 2023. It has moved rates from a peak of 11.25% in 2023 to the current 6.50% and the central bank has hinted that it will continue with the trend this year.

The Federal Reserve, on the other hand, has maintained interest rates stable at a 23-year high of between 5.25% and 5.50%. With the US going through a reflation, most analysts believe that the bank will not cut rates this year.

Other economists expect that the Fed will hike rates by 0.25% if inflation remains stubbornly high, which is a big possibility. Rental prices are still rising while crude oil is in an upward trajectory.

Therefore, there is a likelihood that the two central banks will continue diverging. In a statement, Rosanna Costa, the head of Chile’s central bank said that she will continue with her rate-cutting cycle. Economists see the bank delivering another 50 basis point cut in its meeting in May.

Meanwhile, traders are watching the performance of the industrial metals industry. Copper, the country’s top export, has surged to its highest point since 2022. It has soared by more than 20% from its lowest point in 2022.

The challenge for Chile is that its biggest mines are becoming highly inefficient. For example, its biggest mine has seen low production while its expansion into an underground mine has seen costs jump from $4.2 billion in 2014 to over $7 billion today. 

USD/CLP chart by TradingView

The daily chart shows that the USD to Chilean peso exchange rate formed a triple-top pattern at 993.08. In price action analysis, this pattern is one of most bearish signs in the market. The pair has retested the important support at 956.81, its highest swing on October 17th.

The pair has moved slightly below the 50-day Exponential Moving Average (EMA) while the Percentage Price Oscillator (PPO) has moved to the neutral point. Therefore, the outlook for the Chilean peso is neutral, with the key levels to watch being at 940 and 993. 

A break below 940 will point to more Chilean peso strength while a move above the resistance at 993 will mean more weakness.

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