Chilean Peso Declines Most in Emerging Markets as Copper Plunges

Chile’s peso fell the most in emerging markets after copper plunged as surging interest rates in China, the nation’s biggest trading partner, eroded the outlook for the metal’s demand.

The currency depreciated 1.1 percent to 505.22 per dollar at the close in Santiago, the weakest since Sept. 13. Copper fell 2.1 percent, the most since July.

The peso has fallen 2.2 percent since the central bank unexpectedly cut its benchmark interest rate by a quarter-point to 4.75 percent Oct. 17. Copper, accounting for more than half of Chile’s exports, tumbled today as the benchmark money-market rate in China soared and its biggest banks tripled loan write-offs. The Asian nation is the main buyer of Chile’s copper.

“We’re facing a structural change after the central bank cut rates,” said Alejandro Araya, a currency trader at Banco Santander Chile in Santiago. “And people reacted badly to the renewed financial tension in China.”

In a signal to some investors that the currency’s drop will be hard to sustain, the peso approached the 505.83 per dollar upper limit of its 20-day Bollinger band.

Five-year bond yields declined two basis points, or 0.02 percentage point, to a two-year low of 4.80 percent on speculation policy makers will keep cutting borrowing costs.

“We think there’s room for them to fall further, especially the five-year,” said Felipe Alarcon, an economist at Banco de Credito & Inversiones in Santiago.

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