Bloomberg News

Chilean Peso Rises Most in Two Years on Copper, Europe Optimism

October 06, 2011

Oct. 6 (Bloomberg) -- Chile’s peso gained the most since May 2009, leading advances among major emerging-market currencies, as copper prices surged on optimism European policy makers will contain the region’s debt crisis.

The peso rose 2.1 percent to 520.1 per U.S. dollar from 530.75 yesterday. The Bloomberg JPMorgan Latin American Currency Index gained 1 percent, rising for the first time in five days.

The price of copper, which accounts for more than half of Chile’s exports, rose the most in more than a week on speculation Europe will increase support for banks. Copper for December delivery climbed as much as 5.3 percent on the Comex in New York, boosting Chile’s trade prospects.

“We expect the peso to start appreciating again, basically because of external factors,” said Osvaldo Cruz, an economist at Banco de Credito & Inversiones in Santiago. “Some of the losses in the peso from recent days will revert in part because of measures from the European central bank.”

The European Central Bank said today it would resume buying covered bonds and offer banks unlimited loans for 12 and 13 months.

Foreign investors in the Chilean peso forwards market increased their net bet on the dollar to $6.1 billion on Oct. 4 from $5.3 billion on Sept. 30 and $385 million at the end of August, according to central bank data.

Chile’s central bank sold $38 million of 10-year bonds denominated in pesos at a yield of 4.97 percent, the first time it has paid less than 5 percent since at least July 2004.

Even so, the yield difference between baskets of five-year and 10-year central bank bonds in pesos increased to 50 basis points, the most since Jan. 5.

The bank also sold $84 million of inflation-linked 10-year bonds at a yield of 2.24 percent, the lowest since February 2009. The inflation-linked bond sale had been rescheduled after an auction on Sept. 20 was declared void.

Demand for the inflation-linked bonds totaled more than twice the amount offered, while demand for the fixed-rate bonds was more than three times the amount offered.

Banks bought 45 percent of the fixed-rate peso bonds and 20 percent of the inflation-linked bonds, the central bank said. Pension funds and others took the rest.

The one-year interest-rate swap rate rose for a second day, climbing 11 basis points to 4.23 percent.

--Editors: Richard Richtmyer, James Attwood.

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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