Bloomberg News

Chilean Peso Gains, Trimming Weekly Loss, on Copper Price Bounce

October 21, 2011

Oct. 21 (Bloomberg) -- Chile’s peso advanced, ending a four-day losing streak, as copper also gained for the first day in five amid speculation that European policy makers were moving closer to a deal to contain the euro-area debt crisis.

The peso rose 1.2 percent to 513.15 per U.S. dollar from 519.17 yesterday. The currency posted a weekly decline of 2.6 percent, after two weeks of gains.

Copper, which makes up half of Chile’s exports, rose as much as 6 percent on the Comex in New York to $3.2405 a pound for December delivery. The 120-day correlation between copper price moves and gains and losses in the Chilean peso is at the highest level this year, data compiled by Bloomberg show.

“Chile has been a copper correlation story,” said Flavia Cattan-Naslausky, a currency strategist at RBS Securities Inc. in Stamford, Connecticut. “The moves in copper prices have been pretty brutal and when copper volatility picks up you tend to get an increase in correlation because of funds running systems or models. At the moment it’s just trading on headlines, which makes it hard to take a position.”

Copper had dropped 11.5 percent in the first four days of this week. The metal is still heading for a 5.3 percent decline from $3.4085 on Oct. 14, even after today’s rally.

Offshore investors in the Chilean peso forwards market cut their net long position in the U.S. dollar to $4.9 billion on Oct. 19 from $5.2 billion on Oct. 18. The one-month Chilean peso non-deliverable forward contract rose 1.2 percent to 515.455 pesos per dollar. The three-month contract rose 1.2 percent to 519.2562 pesos per dollar.

The pace of consumer price inflation priced into the forwards market for Chile’s inflation-linked currency unit the unidad de fomento fell four basis points to 0.15 percent for this month and three basis points to 0.08 percent next month, according to Bloomberg calculations.

The inflation forwards market is pricing in 2.44 percent inflation in the 12 months through October 2012, up from 2.3 percent a week ago. Traders are pricing in faster price rises from November on.

--Editors: Brendan Walsh, Richard Richtmyer

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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