EMERGING MARKETS-Chile, Brazil currencies break key levels

Wed Aug 18

SAO PAULO/SANTIAGO, Aug 18 (Reuters) – Chile’s peso and the Brazilian real broke through key levels on Wednesday, putting pressure on the countries’ central banks to follow through on threats to intervene in the market.

Chile’s currency CLP=CLCLP= broke through the 500 peso-per-dollar level for the first time since January.

The region’s currencies were boosted by strong demand for a German government bond auction, increasing demand for some higher-risk assets.

Concerns over U.S. economic growth, which are expected to keep returns on U.S. Treasuries near record lows, have also prompted investors to pour money into Latin America’s higher-yielding debt, lifting the region’s currencies.

But the sharp rise in Chile’s peso prompted the government to issue another warning to the market Wednesday, saying it is closely monitoring the peso’s appreciation and wants a competitive exchange rate.

After firming to 498.20 per dollar, the peso pared gains but still traded 0.1 percent stronger at 501.60 per dollar.

“The market has already factored in strong growth for the country, and is foreseeing further interest rate hikes, which in turn strengthens the peso,” one trader in Santiago said.

Chile’s GDP expanded 4.3 percent in the second quarter compared with the first quarter, data Wednesday showed, the fastest pace since at least the mid-1990s. For details, see [ID:nN18182427]

Chile’s economy has recovered much faster than expected from the effects of a devastating earthquake in February, boosting the currency to seven-month highs.

The government might decide to slow its repatriation of dollars from copper revenues as a way to curb the currency’s rise, analysts said. [ID:nN17124678]

BRAZIL’S REAL BACKS OFF

Brazil’s real (BRBY) also firmed past the psychologically important level of 1.75 real-per-dollar but struggled to remain there.

The currency toyed with the level throughout the session, and traded 0.28 percent stronger at 1.748 against the U.S. dollar.

“The economy is growing and rates are high, so inflows are inevitable,” said Doug Smith, head of Latin American research at Standard Chartered.

“Brazil has allowed the currency to absorb a great deal of appreciation pressure, unlike the Chinese, and so have a legitimate argument that Brazil has carried much of the global appreciation pressure in the region.”

If the real remains stronger than the 1.75 level for an extended period, analysts expect the central bank to act via verbal warnings, bigger or multiple dollar purchases in the spot market or intervention in the futures market.

But analysts at Brazil’s Prosper brokerage said the currency could strengthen to 1.70 per dollar because of huge inflows, partly due to the upcoming capital-raising plan by state-run oil company Petrobras (PETR4.SA).

“Besides this, we expect additional foreign inflows (excluding investment in Petrobras) via bonds and/or shares of $5-6 billion in the short term.”

Mexico’s peso MXN=MEX01 closely tracked the performance of the U.S. stock market throughout the day, trading flat at 12.5990 in the afternoon session. U.S. stocks were slightly higher in afternoon trade.

The performance of U.S. assets is closely watched by investors in Mexico due to the countries’ strong trade links.

Juan Carlos Lopez, head of trading at brokerage Intercam in Mexico City, said the peso would be stuck between 12.58 and 12.63 per dollar during the session due to the lack of important economic data in Mexico or the United States. (Additional reporting by Jean Luis Arce and Michael O’Boyle in Mexico City and Molly Rasbach in Santiago; editing by Jeffrey Benkoe)

If you want to invest in Argentina, Uruguay, Chile or Brazil contact us at:

felipegonzalezvergara@gmail.com

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