Chile’s peso plunged to the weakest level in three years as copper fell and investors fled emerging-market currencies.
The currency dropped 1.2 percent to 549.19 per U.S. dollar, the biggest decline in two months and the weakest close since October 2009. The Argentine peso fell 12 after the central bank scaled back intervention, leading a rout in currencies from developing nations on concern economic growth is slowing.
Latin American currencies have depreciated 4 percent this year on wagers the U.S. Federal Reserve will withdraw monetary stimulus, cutting into the extra yield investors can pick up by buying emerging currencies. Chile’s peso is the worst performer after Argentina’s currency as the central bank cuts rates.
“The whole emerging market class has trended this way and Chile is one of the biggest under-performers in the market,” said Alejandro Cuadrado, a strategist at Banco Bilbao Vizcaya Argentaria SA in New York. “Local markets are preparing for lower rates; the signal has been given.”
The peso broke through technical levels that may indicate it is due to rebound. The dollar-peso cross closed above its higher Bollinger band, while its 14-day relative strength index rose to a level that also suggests the currency is oversold.
A gauge of Chinese manufacturing released by HSBC Holdings Plc and Markit Economics suggests it may contract in January for the first month in six. China is the biggest buyer of Chile’s main export copper, which fell 1.5 percent as of 12:47 p.m. in New York.
Chile’s central bank may need to add monetary stimulus as the economy slows this year, President Rodrigo Vergara told Bloomberg News on Jan. 20. The 12-month implied yield in the peso forwards market fell six basis points to the 3.83 percent, the lowest in 11 months, today.
Foreign investors in the Chilean peso forwards market increased bets against the currency by $2.8 billion this year to a six-month high of $14.3 billion on Jan. 21.
Societe Generale SA today suggested investors bet the peso depreciates against the Brazilian real. Nomura Securities Inc. and BNP Paribas SA have the same recommendation.
Three-month implied volatility on peso options, which reflects investors’ expectations of future currency swings, increased to a three-month high of 10.03 percent.
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