Chilean Currency Rallies on Eased U.S. Concern

Chile’s peso advanced the most in six weeks as U.S. politicians agreed to avoid automatic tax increases that would have threatened the recovery of the second-biggest buyer of the South American nation’s exports.

The peso appreciated 0.9 percent to 474.61 per U.S. dollar at the close in Santiago, the biggest gain since Nov. 19. The currency appreciated 8.4 percent in 2012.

Copper, Chile’s biggest export, advanced to a three-week high as U.S. President Barack Obama said he will sign into law a congressional bill undoing scheduled tax increases for more than 99 percent of households.

“The uncertainty has diminished, so the exchange rate is falling,” said Sebastian Senzacqua, an economist at Bice Inversiones in Santiago, referring to reduced demand for the dollar as a refuge.

Evidence of strength in China supported copper, Senzacqua said. Chinese manufacturing expanded at the fastest pace in 19 months in December, according to data published by HSBC Holdings Plc and Markit Economics on Dec. 31. China and the U.S. are the biggest buyers of Chile’s exports.

Bond yields climbed. The two-year fixed-rate bond yield in pesos increased seven basis points, or 0.07 percentage point, to 5.49 percent. The yield on 10-year inflation-linked bonds rose 11 basis points to 2.63 percent, matching the eight-month high reached Dec. 6.

Benchmark Rates

Chilean central bank policy makers didn’t discuss in December raising or lowering the benchmark interest rate, according to minutes published today. They held it steady at 5 percent, matching the unanimous forecast of 24 economists surveyed by Bloomberg.

The two-year swap rate, which reflects expectations for the average benchmark rate over the next 24 months, rose four basis points today to an eight-month high of 5.27 percent, indicating a greater probability of future increases.

As of Dec. 28, swaps implied a 0.25 percentage point boost in the benchmark rate to 5.25 percent by July and a 0.50 percentage point advance to 5.50 percent by January 2015, according to Banco de Chile research.