Bloomberg News

Chile Peso Posts Biggest Weekly Gain in 28 Months on Copper Rise

October 28, 2011

Oct. 28 (Bloomberg) -- Chile’s peso posted the biggest weekly gain since June 2009 after the price of copper, its biggest export, rose 15 percent and an accord to prevent the spread of the Greek debt crisis increased demand for emerging- market assets.

The peso slid 0.3 percent to 491.15 per dollar from 489.9 per dollar yesterday. The currency appreciated 4.5 percent over the week. It reached an intraday high of 488.88 per dollar today, the strongest since Sept. 20.

The announcement that European leaders had reached a deal to boost their bailout fund to 1 trillion euros ($1.4 trillion) and persuaded banks to take a 50 percent loss on Greek bonds reassured investors, bolstering demand for riskier assets such as emerging-market currencies and commodities. Copper, which makes up half of the country’s exports, headed for its best week since at least 1988 after data also showed Chinese manufacturing may have grown.

“The decisions in Europe led the market to believe that the situation is more or less under control,” said Eugenio Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “Risk appetite is returning and with the increase in the prices of copper and stocks, the currency must of necessity follow.”

Offshore investors in the Chilean peso forwards market cut their net long U.S. dollar position to $4.3 billion on Oct. 26, the lowest since Sept. 23, from $5.2 billion a day earlier, the central bank said today.

Yields Rise

The yield on 10-year inflation-linked central bank bonds rose six basis points, or 0.06 percentage point, to 2.73 percent today, a 38 basis point increase from a week ago.

The yield on 10-year Chilean government bonds in pesos rose 40 basis points this week, including a 37 basis-point gain yesterday after the news of a deal in Europe. Yields on the debt are the highest since August.

Swap rates also rose today, as investors priced in a reduced probability of central bank rate cuts in coming months. The two-year swap rate in pesos rose 15 basis points to 4.72 percent. That’s a 47 basis point increase this week, the biggest since April 2010. The one-year rate rose 11 basis points to 4.84 percent, a 35 basis-point increase from Oct. 21.

“The global market environment is getting better, so it makes sense,” said Tony Volpon, a Latin American strategist at Nomura Holdings Inc. “The market is still expecting some rate cuts, and so are we. The chances of a catastrophic Lehman Brothers-style break have diminished a lot but we’re still going to be in a pretty poor global growth environment for a while. The Chilean central bank is weighing the idea but haven’t got there yet.”

--Editors: Marie-France Han, 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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