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Chile Peso Set to Outperform Brazil Real, Societe Generale Says

Chile’s peso may beat the Brazilian real as the Santiago central bank abstains from intervening in the undervalued currency, according to Societe Generale SA.

The peso appreciated 0.1 percent to 472.38 per U.S. dollar at the close in Santiago today. The real rose 1.1 percent, more than any other major currency, after consumer prices in Brazil rose the most in eight years.

The Chilean currency has traded between 471 per dollar and 474 per dollar for the last week because of concern the central bank may start buying dollars with the peso stronger than 470 per dollar. The risk of intervention has been exaggerated, according to Eamon Aghdasi, a strategist at Societe Generale SA in New York.

“A number of signs are pointing to a peso which is undervalued, and is being held back only by the threat of central bank intervention,” Aghdasi wrote today in a note to clients. “We do not get the sense of a central bank itching to step into the market.”

The real has gained since November after Brazilian central bank President Alexandre Tombini started using a stronger currency to slow inflation by curbing the price of imports.

Brazilian policy makers will probably end measures to force real appreciation, Aghdasi said.

Aghdasi recommends investors bet that the peso strengthens and the Brazilian real weakens. Taking a long position in the Chilean peso versus the dollar will help defray the costs of taking a long position against the dollar versus the real.

The higher interest rates in Brazil, where the benchmark Selic rate is 7.25 percent, make it expensive to bet against the currency.

International investors in the Chilean peso forwards market had a $1.4 billion net short position in the peso on Feb. 5, according to data published today by the central bank.

The net short position had narrowed to a 16-month low of $671 million on Jan. 31. The $700 million increase since then is the steepest for a comparable period since October.

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