Chile’s Peso Counters Emerging-Market Selloff as Copper Rallies

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Chile’s peso countered a slide in emerging markets as copper, which accounts for half of the the nation’s exports, climbed on bets U.S. interest rates will remain low.

The peso rose 1.3 percent to 688.19 per dollar at 2:47 p.m. in New York, the biggest advance in two months and the most among 31 major tenders tracked by Bloomberg. A custom index with 20 developing-nation currencies extended its plunge over the past year to 21 percent. Copper rose 1.8 percent, after touching a six-year low on Wednesday.

“Copper is rising today and that is viewed as a key asset for the exchange rate,” said Jorge Selaive, the chief economist for Chile at Banco Bilbao Vizcaya Argentaria in Santiago. “There hasn’t been any local news that would drive it.”

A report on Wednesday showed U.S. consumer prices gained the least in three months, giving the Federal Reserve room to put off a rate increase. Higher interest rates tend to strengthen the dollar, cutting the appeal of commodities as alternative assets. A 14-day relative strength index for the peso, a measure tracked by traders, had been indicating that the currency was oversold for the past seven days.

The peso has declined 12 percent this year, compared with a 21 percent plunge for the Colombia currency and a 24 percent tumble for Brazil’s real. It closed Wednesday at its weakest level since August 2003. The weak peso has the central bank ruling out rate cuts even as it lowers growth forecasts because the sliding currency is driving inflation.

The two-year swap rate climbed 0.1 percentage point to a 13-year high of 3.6 percent on Wednesday, as traders priced in more rate increases in the next 24 months.

Mark McCormick, an emerging-markets strategist at Credit Agricole SA in New York, recommended betting that Chile’s peso will weaken against its Colombian counterpart because of the nation’s bigger reliance on China for exports.

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