Chile Peso Leads Gains in Emerging Markets Amid Commodity Rally

  • Copper ends five-day losing streak, pushing currency higher
  • Traders mostly looking at external factors for peso trend

Chile’s peso led gains among major emerging market currencies amid a surge in the price of copper, the country’s main export, and as institutional investors bought pesos after a five-day slide.

The peso strengthened 0.8 percent Friday to 707.96 per dollar at 12:10 p.m. in Santiago, after dropping 2.3 percent since Feb. 4. The currency’s implied volatility reached a three-month high this week. The price of copper in New York rose 1.3 percent to $2.033 a pound, also ending a five-day losing streak. The metal in January reached its lowest price in almost six years amid concerns about slowing demand in China.

"In the last few months, the peso has been influenced mostly by external factors, like the price of copper, and that is what is happening today," said Nathan Pincheira, an economist at brokerage Banchile Corredores in Santiago. "Local factors, such as the central bank’s decision to hold rates, are not having much effect on the peso."

The correlation of the price of copper with the Chilean peso is near the highest since late 2012.

Local pension funds and mining corporations have been major dollar sellers recently, while offshore accounts, which are typically dollar buyers, have refrained from active trades, Bloomberg foreign exchange strategist George Lei wrote Friday, citing traders in New York.

Chile’s central bank left its policy rate unchanged at 3.5 percent Thursday, as expected. In its statement it said that it would probably raise rates gradually to ensure inflation slowed toward the 3 percent target. Pressure remains on the central bank to raise interest rates after inflation accelerated to 4.8 percent in January from 4.4 percent the month before. Price growth has exceeded the target range of 2 percent to 4 percent in 19 of the past 22 months.

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