Chile Peso Volatility Falls to 1997 Low as Range Narrows

The Chilean peso has fluctuated less in the past three months than at any time since 1997 as the prospect of central-bank intervention capped the currency’s appreciation.

Ninety-day volatility, a gauge of the magnitude of the currency’s average daily fluctuations over the past three months, dropped to a 15-year low today, according to data compiled by Bloomberg. The currency was little changed at 472.71 per dollar at the close in Santiago. It declined 0.2 percent from a week earlier.

Faster-than-forecast growth, stable interest rates and foreign investment have pressured the peso to appreciate, while traders have refrained from betting on gains past 470 per dollar on concern the central bank may intervene. With Chile’s benchmark interest rate at 5 percent, compared with close to zero in the U.S., investors can profit from the so-called carry trade by borrowing in dollars and lending in pesos.

“The forces are evenly matched,”said Eugenio Cortes, the head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago. “No one wants to be long pesos because the fear of the central bank below 470 is ever greater, but the carry trade still continues and markets are positive.”

Barclays Capital yesterday closed its recommendation that investors bet the Chilean peso would beat the Japanese yen. The currency reached the strongest against the yen since 2008 on March 13. The recommendation, opened in December, returned 18 percent, strategist Sebastian Brown wrote in a note to investors.

“While the conditions in Chile have not changed much, today, there is even less space for the peso to rally against the dollar,” Brown wrote in the note yesterday.

The peso has traded within a narrowing channel all year. It has bounced between 469 and 477 per U.S. dollar since Jan. 3.

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