Chile’s peso posted its biggest weekly gain since early January as exporters brought back sales proceeds and converted them into the local currency.
The peso gained 0.2 percent this week to 471.2 at the close in Santiago. It was down 0.1 percent on the day, after earlier surging as much as 0.2 percent to 469.7 per U.S. dollar.
“This is the peak season for export returns and in an illiquid market that may be pushing the peso higher,” said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago.
The intraday move past 470 per dollar marked the first time the peso had breached that level in three weeks. That put the currency to what Alarcon in a note today called the “danger zone,” where the central bank might step in to weaken it.
“This is the fourth or fifth time we have touched this level and traders may be reluctant to push through,” Alarcon said. “If there’s a big flow we could get there.”
The currency is appreciating even as offshore investors increase their net bets against the peso in the forwards market. International investors raised their net short peso position to $2 billion on Feb. 13 from $671 million on Jan. 31, according to data released today by the central bank.
Chilean pension funds are moving more money offshore and buying fewer pesos in the forwards market to hedge their exposure following rule changes in December, Alarcon said.
The pension funds increased the percentage of their assets invested in equities outside Chile to 28.2 percent in January, the highest since July 2011. At the same time they cut their holdings of Chilean fixed income to the lowest in 18 months.
Their total assets under management surpass the total size of the country’s capital markets, according to Nomura Holdings Inc. research.
The central bank left its benchmark interest rate unchanged at 5 percent for a 13th straight month yesterday. The bank’s policy makers remarked that the currency had appreciated. They removed the phrase “slightly with respect to the dollar” from the previous month’s communique.
“The timing is not clear but the next moves suggest monetary tightening and FX intervention,” Siobhan Morden, head of Latin American fixed-income strategy at Jefferies & Co. Inc., wrote today in a note to clients.
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