Bloomberg News

Chilean Peso Heads for Fourth Weekly Fall on Europe Debt Crisis

November 27, 2011

Nov. 25 (Bloomberg) -- Chile’s peso headed for the fourth consecutive weekly decline as concern that Europe’s debt crisis is worsening curbed demand for higher-yielding emerging-market currencies and eroded the price of Chile’s main export, copper.

The peso weakened 0.8 percent to 527.28 per dollar as of 11:11 a.m. in Santiago, from 523.15 per dollar at yesterday’s close. It headed for a 3.1 percent decline on the week.

Pessimism about the European economy intensified after Germany, the safest country for debt investors in the euro area, failed to sell all the notes offered at an auction and yields on Spanish and Italian government bonds soared. Italy had to pay 6.504 percent to borrow for six months at an auction of bills today, compared to 3.535 percent a month ago. The price of a pound of copper for March delivery slid 4.4 percent this week to $3.2715 in New York.

“The market in general was hanging on to whatever good news it could find but now there is a general realization that it’s more serious and that the crisis will be deeper than we were expecting -- that a recession in Europe is inevitable,” said Eugenio Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “There’s a clear trend of flight to quality in emerging-market currencies and commodities. Doubts about China are also hitting commodities and that’s pushing the peso lower still.”

The next technical level for the peso is at 535 per dollar, Cortes said.

Copper is Chile’s biggest export and the largest buyer is China, which bought $3.6 billion of copper cathodes and concentrate in the third quarter according to central bank data published this week, up 1.5 percent on the same quarter a year earlier.

Offshore investors in the Chilean peso forwards market increased bets against the currency to $5.8 billion on Nov. 23, the most since Oct 20, from $5.5 billion on Nov. 22, according to central bank data.

--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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