Chile Peso Rallies Most in Emerging Markets as Short Bets Tumble

Chile’s peso rose the most in emerging markets after offshore investors cut their bets against the currency to a six-month low.

The peso climbed 0.8 percent to 551.20 per U.S. dollar at the close in Santiago, the biggest gain among 24 emerging-market currencies tracked by Bloomberg. Foreign banks cut their net short position in the peso forwards market by $3.9 billion since May 2 on reduced expectations for interest-rate cuts in Chile. Copper, the nation’s biggest export, slipped 0.1 percent today from its highest level since March.

“The offshore market is still selling dollars,” Alejandro Araya, the head of currency trading at Banco Santander Chile in Santiago, said by phone. “Copper is still at a decent level and it’s premature to price in a weaker economy.”

The peso’s 2.5 percent gain this month is the biggest in emerging markets after the Russian ruble. The Chilean currency has risen as traders projected fewer cuts in borrowing costs after inflation accelerated in April to a level above the central bank’s target range of 2 percent to 4 percent.

Since March, foreign investors have retreated from the biggest short peso position on record as copper climbed from a three-year low. The metal recovered on speculation China will take steps to stimulate its economy, which is the world’s biggest consumer of Chilean copper.

“Pension funds were buying dollars yesterday and they stopped today, but offshore banks have kept selling,” Eugenio Cortes, the head of currency forwards at EuroAmerica Corredores de Bolsa SA in Santiago, said by phone. “That has meant the dollar fell fast.”

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