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Chilean Peso Rises, Paring Steepest Monthly Drop Since September

The Chilean peso advanced, paring its steepest monthly decline since September, after a poll showed a Greek political party that favors accepting conditions for a bailout led rivals, encouraging demand for riskier assets.

“There was a turnaround in global markets because of the Greek opinion poll,” said Cristian Donoso, a trader at Banchile Corredores de Bolsa SA “The market was long dollars and taking a break at 521.5 when there was a lot of offers of dollars. Today is Thursday, and there was a lot of corporate selling.”

Chilean mining companies often sell U.S. currency on Thursdays so they have pesos to meet payroll commitments on Fridays. In the four years through the end of April, the peso appreciated on average 0.14 percent on Thursdays and weakened on average on the other four days of the week.

The peso appreciated 0.2 percent today to 516.38 per U.S. dollar. It earlier touched 521.28, the weakest level since December. The currency dropped 6.1 percent in May as the price of copper, Chile’s top export, fell 12 percent in New York.

The Bloomberg JPMorgan Latin American Currency Index pared its decline today to 0.6 percent as an opinion poll for Athens’s Alpha TV indicated that Greece’s New Democracy party is beating Syriza, which had called for canceling the country’s bailout deal, before June 17 elections.

Decline in Copper

Copper, used in new homes and cars, fell on concern that a deeper European crisis would damp global growth and that Chinese growth is slowing. China is the biggest importer of Chilean copper.

“The peso is the most cyclical currency in Latin America,” said Diego Donadio, a strategist at BNP Paribas SA in Sao Paulo. “So it suffers a lot when we have problems in Europe, and together with slower global growth hitting copper, the peso weakens by definition.”

Copper is testing technical lows, Donadio said. If the metal falls to $3 a pound, the peso may weaken to 540 per dollar, he said. Copper for July delivery fell as much as 1.2 percent to $3.349 a pound in New York today.

The extra yield, or spread, investors demand to buy 10-year dollar bonds sold by Chile’s state-owned copper company Codelco instead of U.S. Treasury debt reached the widest in six months today. The spread on the bonds widened to 190 basis points from 145 basis points on May 3.

U.S. Job Market

Chile’s peso slid earlier today as U.S. reports indicated job-market weakness. It erased its loss after the opinion poll reassured investors that Greece may remain in the euro.

Breakeven inflation rates in Chile fell to four-month lows as the Brent crude oil price reached the lowest level this year. Two-year breakeven inflation fell 11 basis points, the most in two weeks, to 2.69 percent.

Inflation forwards traders have reduced expectations for price rises in 2012 from more than 3.5 percent at the beginning of April as the price of oil has plunged.

The market is anticipating slower price increases than economists or the central bank expect.

“It’s not enough for oil and food prices to stay where they are,” said Nathan Pincheira, an economist at Banchile. “They are pricing in further declines in the oil price.”

Local investors in the Chilean peso forwards market increased their long peso positions by $1.3 billion to a 14-month high of $18.6 billion on May 29, according to central bank data published today. Offshore investors trimmed their long dollar position to $9.4 billion from the record $10.2 billion reached on May 24.

That left Chilean banks and brokers, the counterparties in the trades, with a $9.2 billion long dollar position in the forwards market, the biggest since April, and an $8 billion short dollar position in the spot market. The mismatch between banks’ forwards and spot positions was the biggest in two weeks.

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