Chile’s peso retreated from its highest level in a year as copper, the country’s biggest export, fell on concern that growth in China will slow.
The peso slid 0.1 percent to 474.85 per U.S. dollar after earlier rallying to 472.27, the strongest since Sept. 12, 2011. Copper fell from a four-month high, dropping 0.1 percent to $3.6925 a pound on the Comex in New York.
Morgan Stanley became today the fifth bank to estimate China will only grow 7.5 percent this year, the slowest in 22 years. The Asian nation is the biggest buyer of Chile’s copper, which makes up more than half the Andean country’s exports.
“After shooting to a 12-month high, there was some profit-taking around that level,” said Katia Diaz, an economist at 4Cast Inc. in New York. “There was also a loss of momentum globally, and the peso followed.”
The peso gained earlier as economists forecast a third round of bond buying from the Federal Reserve to support the world’s largest economy.
Commodity-linked currencies such as the peso, the South African rand and the Russian ruble would benefit most from so-called quantitative easing in the U.S., according to Royal Bank of Scotland Group Plc. RBS recommends buying the peso if the Fed starts a new round of stimulus. Almost two-thirds of economists in a Bloomberg survey expect the U.S. central bank to start buying bonds tomorrow.
“People will be looking for safe assets with higher yields to invest the liquidity, and some of that liquidity will flow to Latin America,” said Felipe Hernandez, an economist at RBS in Stamford, Connecticut. “We are still very bullish on the Chilean peso. It keeps attracting capital inflows from foreign direct investment.”
Chile’s five-year credit-default swaps fell to 80 basis points, the lowest in a year on an intraday basis. The two-year interest-rate swap rate rose six basis points to 4.94 percent. Two-year break-even inflation increased four basis points to 2.99 percent, in line with the central bank’s 3 percent target.
Local investors, led by pension funds and excluding banks, in the Chilean peso forwards market cut their long peso position to a three-month low of $15.3 billion on Sept. 10 from $15.5 billion on Sept. 7, according to central bank data.
Banco Itau Chile sold today $47.5 million worth of 14-year inflation-linked bonds at a yield of 3.83 percent, according to data from the Santiago stock exchange.