Bloomberg News

Chile Peso Gains for Second Day as China Sparks Jump in Copper

October 24, 2011

Oct. 24 (Bloomberg) -- Chile’s peso gained for a second day and bond yields rose as copper led a surge in commodities on figures that indicated manufacturing in China, the metal’s top consumer, may increase.

The peso gained 1.6 percent to 505.18 per U.S. dollar from 513.15 per dollar on Oct. 21. The one-year interest-rate swap rate climbed seven basis points to 4.56 percent as of 3:03 p.m. in Santiago. Copper for December delivery rose as much as 7.7 percent today to $3.47 a pound.

The peso has depreciated 8.8 percent since the end of August as concern about Europe’s debt crisis caused volatility in commodity prices. Chile is the biggest producer of copper, which makes up half of its exports, and the 120-day correlation between copper and the Chilean peso increased to an eleven-month high today.

“We’re just a little boat in a big ocean,” said Ronald Volpi, head of spot currency trading at EuroAmerica Corredores de Bolsa SA in Santiago. “Copper has been moving the peso today, more than the other currencies in the region.”

The Bloomberg JPMorgan Latin American Currency Index rose 1.4 percent. Three-month Chilean peso non-deliverable forwards gained 1.6 percent to 511.23 per dollar.

Chinese manufacturing might expand in October for the first month in four after a preliminary purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today climbed to 51.1 from September’s final reading of 49.9

Swap Rates

Chilean swap rates are climbing as traders dial back wagers that a deteriorating global economy will cause the Chilean central bank to start lowering its benchmark interest rate. The two-year rate increased seven basis points to 4.32 percent as of 3:23 p.m. in Santiago. The five-year rate rose six basis points to 4.85 percent.

“The whole market played Chilean rates as a bet on a global collapse,” said Ram Bala Chandran, a Latin American currency and rates strategist at Citigroup Inc. in New York.

The yield on inflation-linked central bank bonds due in 2021 rose to 2.38 percent, according to the Santiago stock exchange. The yield on 10-year fixed-rate government bonds rose two basis points to 5.11 percent.

The inflation forwards market was discounting 2.52 percent inflation next year, as of 2:11 p.m. in Santiago up from 2.41 percent on Oct. 21 and 2.3 percent a week ago, according to Bloomberg calculations. Economists at Chilean brokerage Larrain Vial SA expect prices to rise 2.1 percent next year, they wrote today in a note to clients. Inflation forwards are pricing in 3.27 percent inflation for 2011.

Foreign investors in the Chilean peso forwards market increased long positions in the dollar to $5.8 billion on Oct. 20 from $4.9 billion a day earlier, the central bank said today. The $860 million increase in bets against the Chilean peso was the biggest single-day shift since Sept. 14 and coincided with a 1.5 percent depreciation in the spot currency price.

--Editors: Richard Richtmyer, Brendan Walsh

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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