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Is the Hot Chilean Peso About to Cool?

Chilean Pesos bank note.
Photo by Adam Jeffery for CNBC.com
Chilean Pesos bank note.

The Chilean peso has been on a tear, but this strategist thinks the central bank may soon put on the brakes.

Quick, what Latin American currency has been the one to own this year?

If you said the Chilean peso, you're right.

The peso is up 10 percent against the dollar so far this year, and in the current quarter, it's been the top emerging-market performer, according to Win Thin, global head of emerging market strategy at Brown Brothers Harriman.

Chile is a big copper exporter, particularly to China. And with copper prices holding up surprisingly well, even the cooling in China's economy - which has cut into Chile's copper exports a bit - isn't hurting the peso, Thin explains. The peso, he told me, "has held up relatively well too despite what I see as a more troublesome China outlook."

But the fun may not continue much longer, Thin says. "There is definitely some official concern picking up with regards to a strong currency," he explains, noting that Chile's central bank intervened to curb the peso's rise in early 2011 when it reached 465 against the dollar. With the peso trading right around 470, that potential trigger is not far off.

"Chile is not as obsessed as Brazil is regarding the exchange rate," Thin says, but "with that said, a move to 465 could bring on more intervention."

If you're chasing a hot Chile, be careful not to get burned.

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