Chilean Currency Declines the Most in Two Weeks as Copper Drops

Chile’s peso declined the most in two weeks as copper dropped on concern weak growth in Europe and U.S. budget wrangling may temper demand for the Latin American nation’s biggest export.

The currency depreciated 0.5 percent to 479.70 per U.S. dollar at the close in Santiago, the biggest drop since Oct. 23. The Bloomberg JPMorgan Latin American Currency Index fell 0.2 percent. The peso posted a 0.3 percent weekly advance.

“With the soap opera in Greece and Spain and the fiscal cliff in the U.S., we should have a stronger dollar,” Cristian Donoso, a trader at Banchile Corredores de Bolsa SA, said in a phone interview. “When copper falls, sooner or later that is going to have an effect on the peso.”

Local investors in the Chilean peso forwards market reduced their long peso position by $795 million on Nov. 7 to a two-week low of $16.6 billion, according to data from the central bank. The local investors category is dominated by pension funds that use peso forwards to hedge the currency risk on their investments outside Chile. A decline in long peso positions may reflect repatriation of money by pension funds.

Copper, accounting for 60.7 percent of Chilean exports last month, was headed for a fifth weekly decline after Sweden and France reported lower-than-forecast industrial production.

Euro-area finance ministers may not make a decision on unlocking funds for Greece until late November as they await a report on the country’s compliance with bailout terms, a European Union official said. The U.S. risks entering a recession if policy makers fail to avoid the so-called fiscal cliff of automatic tax increases and spending cuts, Fitch Ratings said.

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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