Chilean Peso Ends Losing Streak as Nowotny Remark Buoys Markets

Chile’s peso, the region’s best-performing currency in the past month, gained for the first time in four days as speculation European leaders will take tougher measures to rein in the debt crisis reduced appetite for the relative safety of dollars.

The peso rose 0.6 percent to 491.65 per U.S. dollar, extending its gain since June 25 to 3.5 percent. Copper, which makes up half of Chile’s exports, climbed as much as 1.5 percent to $3.404 a pound on the Comex in New York.

Ewald Nowotny, a member of the European Central Bank’s council, said there are arguments in favor of granting the European rescue fund a banking license that would give it access to ECB lending. The euro rose and commodities gained as Nowotny’s comments helped allay fears that the European Stability Mechanism would not be large enough to bail out Spain and Italy.

“We have seen a rebound today in the Chilean peso in line with what we have seen in the rest of the region’s currencies and emerging markets,” said Felipe Hernandez, an analyst at RBS Securities Inc. in Stamford, Connecticut. “It’s overall optimism about statements from European officials. Also, in the case of Chile, copper prices are moving upwards as well as a result of the improved international climate.”

Interest Rate

Chile’s central bank left its benchmark interest rate unchanged since January, even as the central banks in countries including Brazil, Israel and South Africa have lowered theirs. Faster-than-forecast growth in the Andean country has offset slowing price rises and concern about the global economy.

The Santiago Chamber of Commerce yesterday urged the central bank to consider lowering the rate, saying high local interest rates had attracted investment that was pushing the peso higher, according to an e-mailed statement.

Local investors, a category dominated by pension funds and excluding banks and brokers, increased their long peso position in the forwards market by $832 million in a week to $17.5 billion on July 23, according to data published today by the central bank. Chile’s 73.5 trillion peso ($149 billion) pension funds are the country’s biggest investors.

“The peso has been outperforming, mostly for the carry trade,” said Eugenio Cortes, head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “Our central bank has a higher interest rate than others and that means that when the dollar rebounds there is selling of dollars.”

In a so-called carry trade, investors borrow funds where interest rates are low and buy assets that offer higher yields.

International investors had a $9.3 billion short peso position in the forwards market on July 23, up from $9.2 billion a week earlier. Banks and brokers had an $8.1 billion short peso position in the forwards market, offset by an $8.2 billion long peso position in the spot market.

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