Chile’s peso appreciated to a six-month high on faster-than-forecast economic growth and near record-low unemployment, adding to speculation the central bank may intervene to weaken the currency.
The peso rose 0.3 percent to 476.35 pesos per dollar, the strongest closing price since Feb. 9.
The peso is the best performing of the Latin American currencies tracked by Bloomberg and has appreciated 5.2 percent this quarter even as the price of copper, which makes up more than half of Chile’s exports, has fallen. The outperformance is being driven by a $2 billion shift in favor of the peso by international investors in the forwards market, attracted by the Andean country’s stable 5 percent interest rate and 6.2 percent economic growth.
“It’s one of the most attractive stories out there in terms of carry and growth,” said Flavia Cattan-Naslausky, a currency strategist at RBS Securities Inc. in Stamford, Connecticut. “They’re cautious about easing and the outlook for copper is quite good. It all fits, and unless the central bank intervenes, it will keep going.”
Data published in the past 10 days showed Chile’s economy is growing faster than forecast with near record-low unemployment, salaries rising more than twice as fast as prices and an 8.9 percent annual increase in retail sales.
International investors in the Chilean peso forwards market cut their short peso position to $7.8 billion on Aug. 6, the lowest in almost three months, according to central bank data published today.
“We have a flexible exchange rate, which we think is optimal for a country like Chile so it can absorb shocks that come from abroad,” central bank President Rodrigo Vergara told a conference in Santiago yesterday. “That doesn’t mean we don’t consider, or it doesn’t mean that we reject the possibility of intervening when we think the exchange rate moves away from its fundamentals.”
The one-year breakeven inflation rate climbed five basis points, or 0.05 percentage point, to 2.78 percent. Breakeven inflation is a measure of traders’ bets on the average pace of future price increases.
Annual inflation slowed for a fifth month in July to 2.5 percent from 2.7 percent. The median forecast in a Bloomberg survey was for a drop of 0.1 percent in the month.
Breakeven rates fell later in the session after El Mercurio newspaper reported that gas distributor Metrogas SA expects to lower bills by an average 22 percent from August. Two-year breakeven inflation fell 1 basis point to 2.69 percent.