Chilean Peso Touches Lowest This Year on Rate-Cut Speculation

Chile’s peso touched its lowest level of the year as signs of economic deceleration led traders to project central bank rate cuts.

The currency depreciated for a seventh straight day, falling 0.2 percent to 478.14 per U.S. dollar at the close of trading in Santiago, the weakest since Jan. 1. It earlier slid as far as 479.78 per dollar, the lowest since Dec. 28. It was the longest stretch of losses since February.

Chile’s economic activity growth slowed to 3.1 percent in March from a year earlier, the weakest since 2011. Central bank President Rodrigo Vergara said on May 8 that the peso had little room left for appreciation, and he didn’t rule out intervention.

“The market is pricing in rate cuts after the activity data came out,” said Alejandro Araya, a currency trader at Banco Santander Chile in Santiago. “Chilean rates remain generous compared to developed markets, and the peso will probably find a level around 480 per dollar.”

The central bank has left its benchmark rate at 5 percent since January last year. It will probably leave borrowing costs unchanged at its meeting tomorrow, according to all 16 economists surveyed by Bloomberg.

Since reaching a 19-month high on April 8, the peso has fallen 2.3 percent, more than any emerging-market currency except the South African rand and the Polish zloty.

Strategists at Barclays Plc, Bank of America Corp., BNP Paribas SA and Nomura Holdings Inc. have recommended betting against the peso.

Foreign investors in the forwards market increased their short position in the peso by $3 billion this month to $8.3 billion on May 13, according to central bank data published today. That is their biggest bet against the currency since November.

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