Chile’s peso hit a three-month low after copper, the country’s biggest export, slumped as Greece moved closer to leaving the euro and German Chancellor Angela Merkel’s party lost a state election.
The peso lost 1.1 percent to 492.41 per U.S. dollar, the lowest closing level since Jan. 24. Offshore investors in the forwards market had a net short position of $7.9 billion on May 10, the biggest bet against the peso since October 2009. Local investors had a $15 billion net long.
“This is still a good level to buy dollars,” said Diego Donadio, a strategist at BNP Paribas SA in Sao Paulo. “On Thursday and Friday we saw local pension funds and investors selling dollars, today we didn’t. Offshore accounts were aggressively buying dollars and there wasn’t much interest in selling from the locals. Either the negative offshore environment is prevailing or locals are running out of bullets.”
Copper dropped as much as 3.5 percent to a four-month low in New York as European officials began to weigh the fallout of a Greek withdrawal. At least five European central bankers broached the topic of Greece leaving the euro after the country’s President, Karolos Papoulias, failed to secure agreement on a unity government as Syriza, the left-wing group opposed to spending cuts, defied overtures to join the government yesterday.
The yield on Italy’s 10-year bonds rose 19 basis points, or 0.19 percentage point, to 5.67 percent. The yield on Spain’s 10-year bonds increased 22 basis points to 6.18 percent.
Chilean two-year interest-rate swaps fell nine basis points to 5.08 percent, the lowest since March 7. Five-year swaps fell eight basis points to 5.31 percent. The yield on a fixed-rate central bank bond due in 2021 fell four basis points to 5.6 percent. The yield on a similar bond due in 2017 fell six basis points to 5.52 percent, the lowest since March.
One-year breakeven inflation, a measure of average future price rises priced into the swaps market, fell 13 basis points to a four-month low of 2.86 percent. The forwards market for unidades de fomento, Chile’s inflation-linked currency unit, is pricing in 0.37 percent inflation this month and 2.73 percent in 2012.
“Commodities are imploding and that’s leading to lower expectations of inflation,” Donadio said.
The price of a barrel of Brent crude oil fell as much as 2 percent today to $110.04. Chile relies on imports for almost all its oil and gas.
Analysts Flavia Cattan-Naslausky and Felipe Hernandez at Royal Bank of Scotland Group Plc in Stamford, Connecticut recommended buying the currency in the non-deliverable forwards market. They set a spot price target of 473.1. Investors should exit the trade if the forwards weaken to 494, they said.
The two-month non-deliverable forwards contract fell as much as 1.2 percent to 497.013 today.
“We like the story in Chile,” Cattan-Naslausky said. “We opened today quite weak, but hopefully by mid-week the market calms down and we’ll see some relief. Right now the market doesn’t look too great.”