Chilean Peso Surges in Extended Trading on Fed Stimulus Plan

Chile’s peso extended gains in after-hours trading after the U.S. Federal Reserve pledged to buy $40 billion a month of mortgage securities for as long as it takes to reduce unemployment.

The peso advanced to 470.4 per dollar at 3:50 p.m. in Santiago, according to prices from Datatec. It gained 0.5 percent to 472.71 during normal trading hours, closing at the highest level in a year.

The Fed said it would probably hold its benchmark rate near zero through mid-2015. The Fed said a “highly accommodative stance” will remain for some time after the recovery in the world’s largest economy picks up momentum.

“The market for now is celebrating,” said Alejandro Araya, a trader at Banco Santander Chile in Santiago. “It’s all positive.”

Forward points, which measure the differential between the spot peso price and the non-deliverable forward price, jumped as traders anticipated lower dollar yields. The one-month forward point rose to 2.9 pesos per dollar, the highest since January 2009. The three-month forward point rose to a 12-month high of 7.03 pesos per dollar.

The one-year basis swap was unchanged at a three-year low of negative 19 basis points below six-month Libor, the lowest since 2009. The two-year basis swap rate rose to 20 basis points today from a one-month low of 19 basis points yesterday.

Dollar Liquidity

The forward points and the basis swap are functions of each other. Banks can use the forwards market to fund themselves in dollars by buying dollars for pesos in the spot market and buying them back in the forwards market.

“The liquidity in dollars is phenomenal,” Araya said “This is not that the market is pricing in local rate hikes, it’s that liquidity in dollars is very high.”

All 19 economists surveyed by Bloomberg said Chile’s central bank will leave its benchmark interest rate unchanged at 5 percent for an eighth straight month today. Central bank President Rodrigo Vergara said Sept. 5 that the inflation-adjusted exchange rate was aligned with economic fundamentals and that intervention to weaken the peso would have a “significant cost.”

International investors in the Chilean peso forwards market had a $9.5 billion short peso position on Sept. 11, up from $9.1 billion a day earlier. They had a $10.2 billion short peso position Sept. 5.

The two-year interest-rate swap rose three basis points to a four-month high of 4.97 percent. The one-year swap rate was unchanged at 4.99 percent.

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