Reuters: US Dollar Report: Chile peso on rise, could break 470/dlr with US stimulus

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Chile peso on rise, could break 470/dlr with US stimulus Aug 29th 2012, 22:19 By Moises Avila SANTIAGO | Wed Aug 29, 2012 6:19pm EDT SANTIAGO Aug 29 (Reuters) - Chile's peso will probably continue to appreciate in line with the Andean nation's strong economic fundamentals during the rest of the year and may even break technical resistance at the 470-per-dollar level if the United States unleashes a new round of monetary stimulus, analysts said. The peso has gained around 8 percent versus the dollar since the start of the year to trade near 480 per dollar, a level Finance Minister Felipe Larrain said has the government's attention. Analysts see the peso trading in a range of 475 to 485 per dollar over the coming weeks, short of levels which have triggered central bank intervention in the past, as the market awaits clear signs of extra stimulus in the United States and Europe. Markets are awaiting a speech by U.S. Federal Reserve chairman Ben Bernanke in Jackson Hole, Wyoming on Friday for hints on a third round of stimulus, which likely would translate into dollar inflows to emerging economies, and push up local currencies. "There's a strong psychological level at 473-470 (pesos per dollar) because there's more of a chance the Chilean central bank will intervene," said Sergio Tricio, head of research at Forex Chile. "But if quantitative measures in the United States are used, the peso could break that level," he said on Tuesday. The central bank used a dollar-purchasing program last year, which lasted through December, to beat back the peso after it appreciated to its highest level in more than 2-1/2 years at 465.50 per dollar. Earlier this month, Chile's central bank held its key interest rate steady at 5.0 percent for a seventh straight month, saying energy and food prices could pick up in coming months, and mentioned the appreciation in the peso in what was viewed as a signal to the market. "It's not just the key interest rate's level, but it's the neutral stance regarding rates that the central bank has maintained up until now that's helped support the peso," Jorge Selaive, chief economist at bank BCI in Santiago said on Wednesday. The economy of Chile, the world's largest copper producer grew 5.5 percent in the second quarter, year-on-year, bolstered by mining, retail, forestry, agriculture and brisk domestic demand. The peso has firmed as an attractive interest rate differential compared with the developed world and high levels of foreign investment have kept dollars flowing into Chile. Analysts say the currency has some room to appreciate before any concrete intervention measures. Conversely, if expectations for stimulus are dashed and risk aversion returns, the peso could abruptly weaken to 500 per dollar. "It's likely we'd see some action on the part of the central bank or government if the peso breached 470 (per dollar). It's a complicated level when we have falling prices for our exports and sliding export volumes ... the sector's competitiveness is already facing a very complicated scenario," BCI's Selaive said. Chilean exporters have been asking the central bank to take action to stem the peso's strength to help make prices for their products more competitive. The peso's current strength is attuned to Chile's economic reality, the former president of the central bank, Jose De Gregorio, told Reuters last week. "The peso is within a range that is consistent with Chile's economic fundamentals ... we said it when we intervened in 2011. The tension of the currency will last for a very simple reason: Chile is a strong economy and has extremely favorable conditions," De Gregorio said. In 2008, the monetary authority intervened after the peso firmed to 431 per dollar. Link this Share this Digg this Email Reprints

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