Chilean Peso Rallies as China’s Interest-Rate Cut Supports Risk

Chile’s peso rose, heading for its biggest weekly gain since October, after China cut interest rates for the first time since 2008, encouraging demand for riskier assets in emerging markets.

The peso appreciated 1.2 percent, the most since February, to 500.49 per dollar. The currency has gained 3.6 percent since June 1, which would be the biggest weekly increase since the five days ended Oct. 28.

“China to the rescue,” said Flavia Cattan-Naslausky, a Latin America strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “It’s a very strong pro-growth signal and policy from China, which mitigates the European situation for the time being. Latin American currencies had reached attractive levels after last month, which provides opportunities for investors.”

The reduction in borrowing costs by China came after Australia lowered interest rates and comments from European and U.S. central bank officials supported speculation over more monetary stimulus.

Chile’s five-year credit-default swaps fell one basis point to 120 basis points. The highest-rated Latin American country has seen the rate drop from 136 basis points on June 4.

The 10-year inflation-linked swap rate rose five basis points to 2.18 percent while the yield on a two-year inflation- linked swap was unchanged at 1.92 percent.

International investors in the peso forwards market had a $10.1 billion net short position in the Chilean currency as of June 5, little changed from a day earlier and close to the record $10.2 billion short on May 24. Local investors had a $17.5 billion long peso position, according to central bank data published today.

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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