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Chile’s peso headed for the biggest weekly drop since March after political turmoil in Greece and evidence of slowing growth in China undermined the country’s export prospects and foreign investors bet against the currency.
The peso, little changed at 486.39 per U.S. dollar at 12:05 p.m. in Santiago today, is down 0.7 percent this week.
Copper, the backbone of Chile’s export economy, fell for a second week as data showed China industrial production grew at the slowest pace since 2009 and industrial output in India unexpectedly contracted. The peso is trading at the lower limit of a range it has held since early March, falling to 491.85 on May 9 yet failing to close weaker than 490.
“We need a few negative days in a row to break out,” said Eugenio Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “There’s a lot of risk, but there’s also a lot of desire to save the situation so the market receives any lifeline that gets thrown with enormous optimism.”
Offshore investors cut their peso forwards position by $890 million on May 9 to a $7.7 billion short, their biggest bet against the Chilean currency since November 2009. As recently as August of last year they had a net long peso position. Offshore investors may include the overseas branches of local banks.
Local investors had a $14.9 billion net long peso position in the forwards market, down from $15.2 billion at the end of April.
As both foreign and local investors have trimmed forwards bets on the peso this month, their Chilean bank and broker counterparts cut wagers on the dollar in the forwards market to a seven-month low of $7.3 billion and their long peso position in the spot market to a seven-month low of $8.5 billion. In the week through May 9, Chilean banks and brokers bought $1.1 billion of U.S. dollars in the spot market.
“It’s not that surprising given what it happening abroad,” said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago. “There are big movements in each direction but the tendency is clearly towards greater risk aversion. If you’re betting on carry, the risk of a currency reversal is huge.”
Brazil’s real may gain against the Chilean peso, Royal Bank of Canada said today in an e-mailed note to clients.
RBC’s head of global foreign exchange strategy, Nick Chamie, recommended betting that the peso drops to 257.75 per real.
The peso, which reached the strongest level against the real in five years on May 9, slid 0.6 percent to 250.48 at 12:16 p.m. in Santiago today.
The peso is at risk from falling copper prices and should catch up to declines in the real and Mexican peso, which have weakened faster than the peso, Chamie wrote.
Brazil’s government may intervene to stop the real falling after it passes 1.98 per U.S. dollar, he wrote.
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