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Chilean Peso Falls as Intervention Speculation Offsets Inflows

Chile’s peso weakened as concern the central bank may take steps to slow the currency’s rise offset inflows from foreign investors.

The peso slid 0.2 percent to 472.35 per U.S. dollar at the close in Santiago. The decline pared its gain this month to 1.5 percent, the biggest among the region’s most-traded currencies.

Chile’s currency appreciated to its strongest level in 25 months against the country’s five major trading partners last month, according to data from the central bank. The government is concerned that the strength of the peso is squeezing margins for exporters, President Sebastian Pinera said on Jan. 17.

“At these levels there’s a lot of noise about intervention,” said Mauricio Olivares, a currency trader at Bank of Nova Scotia’s unit in Santiago. “It’s hard to see the peso going through 470 or 469 because few players are prepared to take those positions overnight. Verbal intervention has put a floor on the exchange rate.”

International investors cut their dollar-forwards position to a 16-month low on speculation stable or rising interest rates and the lowest inflation since 2010 will make the peso more profitable than the U.S. currency. The central bank on Jan. 17 left its benchmark interest rate unchanged at 5 percent for a 12th straight month.

“Since November we have seen bigger positions, especially from offshore banks going short dollars in the local market,” Olivares said. “Their position has been to bet on the appreciation of the peso because there’s a wide rate differential. As long as there’s no sign the central bank will do anything, offshore investors will keep pushing the peso higher.”

Offshore investors had a $2.6 billion net short peso position on Jan. 17, the smallest since Sept. 16, 2011. They have reduced bets against the peso by $6 billion in the past two months.

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