Bloomberg News

Chilean Peso Falls to Three-Week Low on Europe Outlook, Copper

November 16, 2011

Nov. 15 (Bloomberg) -- Chile’s peso dropped to a three-week low as concern Europe’s economy may deteriorate spurred investors to pare higher-yielding assets.

The peso fell 1.4 percent to 509.56 pesos per U.S. dollar, from 502.5 yesterday. It has weakened 8.2 percent this year, the second-worst performance among six Latin American currencies after Mexico’s peso.

The yield on Spain’s 5.5 percent 10-year bonds rose 23 basis points to 6.30 percent today, the highest since July, after the country’s financing costs surged in an auction of debt. Data showed investor confidence in Germany, the largest economy in the euro zone, fell to a three-year low on concern the region’s debt crisis will push the country into recession.

“The peso is still under pressure because the risk factors remain intact,” said Katia Diaz, an economist at 4Cast Inc. in New York. “It is playing catch-up a bit because copper fell yesterday after the peso had closed. Italian yields are rising and Spanish yields have started rising too, and meanwhile there’s no support for the peso from the commodities market.”

Chile’s peso tracks the price of copper, which accounts for more than half of the nation’s exports. Copper for March delivery slid as much as 1 percent on the Comex in New York today. Over the last three weeks the 120-day correlation between the Chilean peso and copper, used in cars and homes, has been the strongest since at least 1998, according to Bloomberg data.

Offshore investors in the Chilean peso forwards market reduced their net short position in the currency versus the dollar to $5 billion on Nov. 12 from $5.1 billion a day earlier, according to central bank data.

Bank Meeting

Interest-rate swap yields slid before a central bank meeting today at which policy makers will hold the benchmark interest rate at 5.25 percent, according to all 16 economists in a Bloomberg survey. The one-year interest-rate swap yield dropped eight basis points to 4.61 percent. The two-year swap rate fell six basis points to 4.5 percent.

The peso’s sharp decline “could be some positioning ahead of the meeting today,” said Flavia Cattan-Naslausky, a currency strategist at RBS Securities Inc. in Stamford, Connecticut.

--Editors: Glenn J. Kalinoski, 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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