Chile’s peso rose to the strongest level in five months as Greek leaders reached a deal on austerity measures and copper gains bolstered trade prospects for the metal’s top-producing nation.
The peso strengthened 0.5 percent to 475.35 per U.S. dollar from 477.78 yesterday, closing at its strongest level since Sept. 13.
Copper, which makes up more than half of Chile’s exports, extended this year’s rally to 16 percent in New York after slumping 21 percent last year. The peso gained after Greek politicians agreed to a deal to cut spending, putting them a step closer to a 130 billion euro ($173 billion) rescue package.
“It’s a combination of three things: the euro-zone news; flows from foreign investors betting on the peso, which you can see in the forwards data; and it’s Thursday,” said Osvaldo Cruz, an economist at Banco de Credito e Inversiones in Santiago.
The Chilean peso generally outperforms the dollar on Thursdays, a day when mining companies sell the proceeds of exports in order to have pesos for paying workers.
Offshore investors in the Chilean peso forwards market trimmed bets against the currency to $4.3 billion on Feb. 7 from $4.5 billion on Feb. 6, according to central bank data. They have increased bets on the currency by $1.3 billion in the past month.
The peso’s 9.3 percent gain this year has prompted analysts to question whether the central bank may start buying dollars, as it did last year to curb currency gains.
‘Starting to Talk’
“Chile has one of the last central banks that hasn’t yet intervened,” said Flavia Cattan-Naslausky, a local markets strategist at RBS Securities Inc. in Stamford, Connecticut. “The market is starting to talk about whether they come back in or not.”
Any central bank intervention would slow rather than halt local currency appreciation, Leonardo Suarez, chief economist at Santiago-based brokerage Larrain Vial SA wrote today in a note to clients. The peso may reach 450 in the second half of the year even if the central bank starts buying dollars, he said.
Swap rates rose today as investors continued to take off bets on a central bank interest rate cut and as they responded to a broader increase in yields in international markets. Swap rates in Colombia, the U.S. and the eurozone climbed after news of the Greek deal. European finance chiefs still need to approve the pact.
“That greater optimism pushed up swap rates and is also reflected in commodities and stocks,’ said Sebastian Ide, head of the interest-rate trading desk at Banco de Chile in Santiago. “The curve is pricing in a monetary policy rate of higher than 4.5 percent at the end of the year, which is a response to the inflationary pressure.”
The one-year swap rate in pesos climbed four basis points, or 0.04 percentage point, to 4.75 percent. The two-year swap rate also climbed four basis points to 4.75 percent.
Six-month breakeven inflation rose 11 basis points to 3.26 percent. Suarez forecast breakeven and long-dated bond yields rise to rise.
Forwards for unidades de fomento, Chile’s inflation-linked accounting unit, today suggested that inflation would end the year at 3.42 percent, up from 3.38 percent yesterday and 2.99 percent at the end of January. Suarez said inflation may pass 5 percent this half and end the year faster than 4 percent.