Chilean Peso Offshore Shorts Fall After Central Bank Statement

International investors reduced bets against the Chilean peso by the most in eight weeks on the central bank’s view that the currency has risen “slightly,” easing concern policy makers will try to slow its advance.

The peso gained 0.3 percent to 471 pesos per dollar at the close in Santiago, extending its rally this month to 1.7 percent, the most among major Latin American currencies tracked by Bloomberg. Offshore investors in the forwards market cut their short peso position by $811 million to a 16-month low of $1.8 billion on Jan. 18, according to data published today. A short is a bet an asset will lose value.

“Offshore investors are less concerned, and they’re taking positions based on that opinion,” Alejandro Araya, a trader at Banco Santander Chile in Santiago, said by telephone. “Locals are a bit more nervous whereas the offshore players have more faith in the good judgment of the central bank. The economic fundamentals that support the peso are still present.”

The central bank mentioned the exchange rate for a second straight month in a policy statement released Jan. 17, saying the peso had appreciated only “slightly.” Policy makers held the target lending rate at 5 percent for a 12th month.

The currency has traded in a range of 469 to 476.5 per dollar over the past two weeks as concern the central bank will intervene to prevent gains overshadowed confidence in emerging-market assets.

The central bank probably won’t step in to the currency market at 470 per U.S. dollar, Felipe Hernandez, a strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, wrote today in a note to clients. Intervention is more probable at 450 to 460, according to Hernandez.

RBS View

“We expect the peso to continue under strengthening pressure from favorable terms of trade and robust capital inflows, and the central bank to remain on the sidelines,” Hernandez wrote.

Strategists at BNP Paribas SA in Sao Paulo disagree. They recommend investors bet the peso will weaken against the dollar because of the threat of intervention. The market “is too complacent regarding the risk of an effective announcement” of intervention in Chile, Diego Donadio and Thiago Alday wrote in a note to clients.

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