Bloomberg News

Chilean Peso Declines After Three-Day Rally as Copper Slumps

September 28, 2011

Sept. 28 (Bloomberg) -- Chile’s peso retreated for the first time in four days as lower copper prices dimmed trade prospects for the biggest producer of the metal.

The peso fell 1.4 percent to 512.86 per U.S. dollar, extending losses after the central bank said it wouldn’t suspend a $50 million per day dollar-buying program “for now”. The Bloomberg JPMorgan Latin American Currency Index slid 0.9 percent.

Commodities slumped on renewed concern that the European debt crisis may slow global growth. Copper for December delivery dropped 7.7 percent to a one-year low in New York.

“Latin American currencies aren’t riding the back of the improved performance in developed markets today and nor are commodities,” said Cristian Donoso, a trader at Banchile Inversiones in Santiago. “We’re following commodities, and there’s some short covering because lots of players were oversold in dollars and are now buying.”

The central bank is constantly reviewing its $12 billion U.S. dollar-buying program that started in January and is scheduled to end in December, central bank board member Rodrigo Vergara said in an interview. The program is designed to stem the peso’s gains and increase international reserves.

“For now the program remains,” Vergara said today from the bank’s offices in downtown Santiago. “We could perfectly well discontinue the program at any moment if conditions warranted. We don’t have any exchange rate targets.”

Bond Sale

Chile’s government sold $210 million of five- and seven- year nominal and inflation-linked bonds, said the central bank, which managed the sale.

Banks bought 26 percent of the $73 million of seven-year nominal bonds, which paid a 5.1 percent yield, the bank said on its website today. Demand was 1.6 times the amount sold. Banks bought 65 percent of the $73 million of five-year inflation- linked bonds, which paid 2.09 percent. Demand was 1.28 times the amount sold. Banks bought 80 percent of the seven-year inflation-linked bonds at a yield of 2.27 percent. Demand was 1.5 times the $64 million sold.

Chile’s peso may end the year at 500 per dollar and fall to 530 in the first quarter of 2012, Mike Moran, an economist at Standard Chartered in New York, wrote today in a note to clients. He changed his forecast from 440 in the fourth quarter and 450 per dollar in the first quarter of 2012.

“The bullish factors that supported a strong Chilean peso for much of 2011 are fading or beginning to reverse, leaving the Chilean peso particularly exposed to worsening risk appetite,” Moran wrote.

Foreign investors in the Chilean peso forwards market increased their wagers on the U.S. dollar beating the peso to $5 billion on Sept. 26, the central bank said today. That’s their biggest bet against Chile’s currency since July 2010.

--Editors: James Attwood, Glenn J. Kalinoski

To contact the reporter on this story: Sebastian Boyd in Santiago at

To contact the editor responsible for this story: David Papadopoulos at

Steve Ballmer, Power Forward
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