From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
Despite the trendless nature of the major forex pairs, there’s still plenty of information coming from the exotics right now – particularly emerging market currencies.
The Chilean peso – and its relationship to copper – now has our attention.
Let’s take a look.
Here’s a chart of the USD/CLP cross overlaid with Copper Futures $HG_F with a correlation study in the lower pane:
Chile is the world’s largest copper producer, which explains the strong negative correlation between the USD/CLP pair and the price of copper.
You can see this relationship in the chart, as USD/CLP tends to peak and roll over at the same time copper bottoms out, and vice versa.
The USD/CLP now appears to be topping and turning lower after finding resistance at its 2020 highs. USD/CLP also peaked at these levels after the COVID crash, which coincided with the start of copper’s rally to new all-time highs.
The question now is whether this USD/CLP weakness is here to stay. And, if it is, will copper catch higher as it has in similar scenarios in the past?
The strength in the Chilean peso suggests a rally in copper is the higher probability outcome.
When we consider the backdrop of rising rates and broadening participation among commodities, it’s hard to imagine copper hasn’t already resumed its rally from early last year.
We’ll now wait to see if copper follows the Chilean peso’s lead.
Stay tuned! We’ll keep you updated as these trends unfold.
