Bloomberg News

Chilean Peso Posts Weekly Gain as Copper Boosts Trade Outlook

April 27, 2012

Chile’s peso completed its first weekly gain in three weeks as higher copper prices signaled a larger trade surplus for the biggest producer of the metal.

The peso strengthened 0.4 percent to 483.35 per U.S. dollar, extending an increase for the week to 0.6 percent.

Stocks rose in Europe after Vinci SA, Europe’s largest builder, reported first-quarter sales that beat analysts’ estimates. Copper for July delivery gained as much as 1.5 percent to $3.83 a pound in New York after stockpiles fell.

“We have seen copper rise from $3.6 a pound,” said Alejandro Araya, a currency trader at Banco Santander Chile in Santiago. “There’s been some corporate dollar selling from mining companies that need pesos to finance spending on machinery and salaries.”

Copper accounts for half of Chile’s exports. Stockpiles monitored by the London Metal Exchange are at the lowest level since November 2008 and those tracked by Shanghai’s exchange are the lowest in more than two months.

Local investors trimmed their long peso position in the forwards market to $16 billion on April 25 from $16.5 billion a day earlier. Offshore investors had a $6.9 billion short position, little changed from $7 billion a day earlier, according to data published today by the central bank.

Swaps markets and inflation forwards were little changed after an increase in corporate tax and a cut in income tax announced by President Sebastian Pinera last night. The two-year break-even inflation rate rose three basis points to 3.2 percent. The forwards market for unidades de fomento, Chile’s inflation-linked currency unit, today priced in 2.94 percent pries rises this year, unchanged from yesterday.

“We need more information to be able to describe the impact,” said Nathan Pincheira, an economist at Banchile Inversiones in Santiago. “We don’t know how much of this proposal will be passed or when.”

Pinera proposed cutting tax on loans, which would translate into a 0.5 percent one-off decline in monthly inflation, Pincheira said. “But we don’t know which month so it’s hard to price into assets,” he said.

Pinera also proposed a flexible tax on fuel, to mitigate volatility in oil prices, and a tax rebate on school fees.

Economists at Bice Inversiones in Santiago estimated the lower loan tax may cut inflation by 1 percentage point. Economists at Banco de Credito e Inversiones estimated it would lower inflation by 0.4 percentage point in the month it came into effect. BCI estimates assume the tax cuts won’t come into effect this year.

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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