Dollar surges past 962 pesos as copper crumbles, regional GDP contracts

The dollar broke through $962 in Chile's FX market on Wednesday, its highest level in nearly a year, and the move captured in a single data point the confluence of pressures now defining the country's economic landscape: a US monetary cycle tightening more than expected, a peso stripped of copper's cushion, and a domestic economy still unable to find enough traction to withstand external headwinds.

The immediate trigger was the release of US PMI readings that beat market estimates, reinforcing the narrative that the Federal Reserve has both room — and willingness — to keep raising rates. The ten-year Treasury yield crossed the 5% threshold, hitting highs not seen since 2007, and lifted the dollar globally: the dollar index advanced 0.51% to 100.83. In that setting, the Chilean peso had no sectoral defenses: copper slipped 0.42% on the London Metal Exchange to US$6.68 per pound, depriving the local currency of its main anchor. The IPSA managed a modest nominal gain, but adjusted for the exchange rate it fell 1.5%, as reported by Diario Financiero — a distinction foreign investors will not overlook. The question of whether the dollar is heading toward $1,000 is now openly circulating in the market.

The FX pressure arrives at a moment when the domestic macro picture was already fragile. The Banco Central confirmed this week that GDP contracted in seven of the country's sixteen regions during the second quarter, with Antofagasta — the heart of copper mining — leading the declines on lower metal output. The southern zones registered drops tied to aquaculture. The regional reading amplifies what the aggregate data had already suggested: the July Imacec fell 1.5% and unemployment stands at 9.5%. BTG Pactual's chief economist, Pablo Cruz, insisted that recovery remains the base-case scenario for the final stretch of the year and more forcefully in 2027, but the sequence of negative prints is steadily eroding the margin of confidence.

It is against this backdrop that the government of José Antonio Kast has rolled out a simultaneous set of signals aimed both abroad and at home. From New York, at a meeting with investors at the Council of the Americas, Kast highlighted tax stability and progress on environmental permitting as arguments for attracting capital. Chile's accession to the so-called Shield of the Americas — a Washington-led initiative covering investment, critical minerals and the notion of "trusted suppliers" — fits within that logic, though Vice President Claudio Alvarado was quick to clarify that the agreement does not compromise the trade relationship with China, the country's top partner with exchanges exceeding US$67 billion in 2025. The tension between the geopolitical realignment toward Washington and structural dependence on the Chinese market — also visible in efforts to diversify cherry shipments — is one of the underlying dilemmas this government will have to manage with surgical precision.

On the domestic front, the labor urgency is palpable. Labor Minister Tomás Rau has convened for Friday the members of the labor roundtable chaired by economist David Bravo, with the aim of reviewing the emergency measures the government will announce once Kast returns from his tour. Among the proposals gaining traction is the expansion of public works to two or three shifts, a measure the roundtable itself described as suitable for immediate implementation. The advance of up to US$200 million that the Ministry of Public Works agreed to deliver to the Korean consortium building the Chacao Bridge — equivalent to 26% of the total cost of the project — points in the same direction: accelerating public investment as a short-term employment lever. SOFOFA, for its part, presented this week an agenda of five structural labor reforms, centered on all-events severance through individual accounts, universal childcare and greater contractual flexibility, while stressing that environmental permitting remains the main obstacle to private investment.

Capital markets reform — MK4 — concentrates another front of expectations. Credicorp Capital Chile, the Peruvian holding with a local market presence, was blunt: "If we want Chile to be a relevant regional player, it must be approved quickly," said its top executive Hitoshi Kamada. Acafi backed proportional regulation for investment funds, while former pension system authorities agreed that the reform is an opportunity to strengthen the institutional framework of the Superintendencia. Superintendent Joaquín Cortez added that if the new pension fund Fonavi issues state-guaranteed bonds, the AFPs could acquire them on attractive terms, opening a financing channel that links pension reform to the depth of the capital market.

What lies ahead is dense. The market will gauge whether US activity data and the Fed's tone consolidate another rate hike in October, which would keep the peso under pressure. In parallel, the FNE has formally opened investigations into Aceros AZA's acquisition of Huachipato and SMU's purchase of the Ahorra chain, processes that could redefine the competitive structure in steel and discount retail. And the full suspension of operations at Minera Escondida — the world's largest copper deposit, operated by BHP — after a fatal accident on Wednesday in the mine area adds a short-term uncertainty factor over metal output at a moment when the regional economy can least afford another drop in extraction.

---