Dollar breaches 13-month high as Chile faces fiscal-monetary squeeze

The dollar broke through $973 on Tuesday, closing at its highest level in thirteen months and making the Chilean peso the fourth worst-performing emerging currency of the session, behind the Brazilian real, the Peruvian sol and the Colombian peso. This is no isolated phenomenon: the move clearly reflects the tension now defining the Chilean economy, where global financial tightening is colliding head-on with a government trying to simultaneously contain the fiscal deficit and activate the labor market through public spending.

The immediate catalyst was the resumption of selling in U.S. Treasuries. The 10-year Treasury was hovering around 5.27% and the 30-year approaching 5.60%, levels not seen in decades and continuing to reshape global capital flows. The IPSA logged its fourth consecutive session in the red and is threatening to lose the 11,000-point mark, sitting at lows since August, while Chilean sovereign bonds also faced selling pressure. The S&P 500 slipped 0.2% at the close, but it was fixed income, not equities, that took center stage. For Chile, the combination of a globally stronger dollar and copper that has lost momentum in recent sessions is particularly adverse: without the support of the red metal, the peso is left exposed to external winds without a buffer.

It is against this backdrop that fiscal policy takes on an urgency that goes beyond the technical. President José Antonio Kast met Tuesday night with ruling-coalition lawmakers at Cerro Castillo to preview the guidelines of the 2027 Budget, which will be submitted to Congress on Wednesday. Finance Minister Jorge Quiroz confirmed that public spending will grow 1.5% in real terms compared with the projected 2026 execution, a figure that beat market expectations, which had anticipated an increase of around 1%. Ruling-coalition legislators received it as good news. Fiscal opposition will be more nuanced: Quiroz himself acknowledged today that the current budget "is full of errors we have had to correct," a signal that managing the inherited spending framework has proved more complex than anticipated.

The executive's budgetary focus is clear: security, health, pre-primary education and, with special emphasis, investment in infrastructure and housing as an employment lever. The Ministry of Public Works detailed its emergency employment plan on Tuesday: an additional portfolio of nearly US$400 million — on top of a base budget of US$3.196 billion — encompassing more than 240 fast-track projects, concentrated in roadworks (which absorb 70% of the investment) and with La Araucanía as the priority region. The goal is to generate 22,711 jobs and increase annual tenders by 25%. Economy Bi-Minister Daniel Mas projected that the full employment plan — dubbed Chile Despega, with mobilized resources of $1.3 trillion — could cut the unemployment rate by as much as a full percentage point once fully implemented in March 2027. That rate currently stands at 9.5%, and the government's goal of ending its term at 6.5% looks challenging to most analysts.

The structural tension underlying this debate was articulated with precision at the seminar SOFOFA opened this week: environmental permitting is today the main obstacle to private investment, ahead even of labor costs. The industrial trade group presented an agenda of five reforms to dynamize the labor market, most notably the replacement of the severance-by-years-of-service system with an individual account administered by the AFC, a proposal that seeks to reduce the contingent cost of hiring and disincentivize informality. SOFOFA president Rosario Navarro called for overcoming the "false dilemmas" that hold back job creation. Labor Minister Tomás Rau was more austere in his expectations: he admitted that the "lack of resources" explains the limited scope of the current employment subsidy, recalling that the trillions spent during the pandemic are no longer available.

While the debate over formal employment advances in policy circles, private mining delivered a signal of fiscal strength that deserves attention: according to Dipres data, the fifteen largest mining companies that report to the CMF paid US$4.492 billion in taxes during the first half of 2026, a 61% jump versus the same period a year earlier. Minera Escondida, operated by Anglo-Australian BHP, accounted for 53% of that total with US$2.394 billion. Collahuasi — controlled in equal parts by Anglo American and Glencore — and Los Pelambres, of Antofagasta Minerals of the Luksic group, contributed US$430 million and US$418 million respectively. For the full year, Dipres estimates a historic payment of US$8.039 billion from the private mining industry, underpinned by an average copper price of US$5.9 per pound. This extraordinary flow partially eases the fiscal equation in a year when production will fall 2.6%, according to Cochilco.

On the regulatory front, the Central Bank warned the Chamber's Finance Committee about the risks of the National Housing Fund (Fonavi), contemplated in the capital markets reform known as MK4. President Rosanna Costa cautioned that the fund could reach assets of US$22 billion at steady state — equivalent to 25% of the current mortgage market — and that the associated state guarantee could loosen credit origination standards, transferring private risk to the sovereign balance sheet. It is a warning that recalls the mechanisms that amplified the subprime crisis in the United States, and one that takes on additional relevance in the current context of elevated long-term rates.

In the renewable energy sector, the Ñuble region approved the construction of a solar plant in Chillán for US$306 million, developed by Unión Solar, with installed capacity of more than 248 MW and over 404,000 panels. The approval comes at a moment when the intercity transport industry faces a cost crisis of a different but equally urgent nature: diesel has risen a cumulative 48% and bus operators warn that between 20% and 30% of the quarterly cost has not been able to be passed through to fares, with a reduction in service supply of between 10% and 12%.

Over the coming days, market attention will split across three fronts: the formal submission of the 2027 Budget to Congress on Wednesday — where the gap between the executive's priorities and the available fiscal margins will become more concrete —, the evolution of personal consumption expenditure (PCE) and employment data in the United States, which will define whether the Fed has room to tighten monetary policy further, and the price of copper, whose recovery will be decisive in supporting the peso and easing pressure on Chilean sovereign bonds.