Bloomberg News

Chile Peso Gains Most in Almost Two Years as Copper Rebounds

October 14, 2011

Oct. 14 (Bloomberg) -- Chile’s peso posted its biggest weekly advance since November 2009 after copper rose and stocks rallied on optimism that Europe will find a way out of its debt crisis.

The peso appreciated 1.1 percent to 499.76 per U.S. dollar after touching a four-week high of 496.95. The currency has appreciated 3.7 percent this week, the biggest gain in the region.

Finance ministers and central bankers from the Group of 20 were meeting today to seek a solution to Europe’s two-year debt crisis with a plan that may involve deeper investor losses on Greek bonds, higher bank capital requirements and a bigger bailout fund. The peso’s appreciation reflects investors removing some of the premium they had demanded to invest in emerging-market assets, according to Juan Pablo Castro, an economist at Banco Santander Chile in Santiago.

“There was an additional punishment of the currency,” Castro said. “The question is whether that risk punishment can be maintained. We’re now seeing a moment of calm. Today there is good news.”

The peso fell to a 14-month low of 535.76 per dollar on Oct. 4 and traded weaker than 510 per dollar for more than three weeks. Those levels don’t reflect the currency’s fundamental drivers such as copper prices and interest rate expectations, which only accounted for about 60 percent of its depreciation, Castro wrote yesterday in a note to clients.

Copper for December delivery rose to as much as $3.4315 a pound on the Comex in New York today, 15 percent above the low of $2.994 a pound reached on Oct. 3.

Forwards Market

Foreign investors in the Chilean peso forwards market cut their long position in the dollar by $609 million to $5.7 billion on Oct. 12 from $6.3 billion on Oct. 11, the biggest single-day shift in favor of the peso since July.

Chile’s central bank yesterday left its benchmark interest rate on hold at 5.25 percent.

BNP Paribas SA in a note to clients today recommended investors continue to buy Chilean pesos on the expectation that copper prices rise further. BNP Paribas expects the central bank to keep rates on hold next month as well.

--Editors: Brendan Walsh, Marie-France Han

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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