Bloomberg reported that Chile’s peso posted its biggest winning streak in more than 2 years, reaching 3 week high as copper rose on investor optimism that Europe will contain its debt crisis.
The peso strengthened 2% to 499.21 per dollar, pushing through 500 per dollar for the first time since September 21st 2011. The currency has gained 6.3 percent in the past week, the most among 25 major emerging market currencies tracked by Bloomberg and the most for any 5 day period since June 2009.
The price of copper, Chile’s principal export, has gained 13% to USD 3.3955 a pound for December delivery from a low of USD 2.994 reached on October 3rd 2011 at the Comex in New York. Mr Nicolas Sarkozy president France and Ms Angela Merkel German Chancellor vowed after a meeting on October 9th 2011 to recapitalize European banks.
Mr Matias Madrid chief economist at Banco Penta in Santiago said that “The news about recapitalization of banks at the weekend has brought more confidence. The copper price is now above USD 3.30 again. Those are the two factors driving this.”
According to central bank data, foreign investors in the Chilean peso forwards market trimmed their net long dollar position against the peso to USD 6.1 billion on October 7th 2011 from USD 6.5 billion on October 6th 2011.
According to the median forecast of 59 economists in a central bank survey, Chile’s benchmark interest rate will fall to 4.5% next September from 5.25% now. Interest rate swap rates are pricing in steeper rate cuts than that. The one year interest rate swap at 4.43% implies traders expect the average central bank rate between October 14th 2011 and October 14th 2012 to be about that level, lower than the economists’ projections.
Increased confidence has led to a selloff in Chilean central bank and government bonds as investors seek out higher yielding assets. The yield on a basket of 5 year inflation linked central bank bonds rose 19 basis points to 2.14%. The yield has increased from 1.76% on October 4th 2011. Interest rate swap rates also climbed.
The2 year swap rate rose 9 basis points to 4.26%. The 3 year swap rate in pesos jumped 14 basis points to 4.41%. Inflation linked swap rates also climbed. The one year inflation linked swap increased 13 basis points to 2.04%.
Mr Sebastian Ide a fixed income trader at Banco Santander Chile in Santiago said that “The big driver has been the better international scenario. The market mood has been better than last week. We have seen flows from active investors closing positions in Chilean interest rates and the curve has given back quite a lot of the risk premium that was there in recent weeks.”
(Sourced from Bloomberg.net)
