Foreign bets against Chile peso near 6-month high

Wed Apr 4, 2012 12:42pm EDT

* Positions suggest Chile peso to weaken
    * Revival of euro zone fears hike bets against peso
    * But looming Chile rate hike could ease positions

    By Moises Avila	
    SANTIAGO, April 4 (Reuters) - Foreign bets against the
Chilean peso are at their highest level in almost six months on
revived fears of a recession in Europe  but expectations of a
looming interest rate hike due to an uptick in Chilean inflation
could ease investor positions.	
    Chilean non-deliverable forwards, or foreign exchange
contracts settled in dollars, point to a weaker peso,
with the net position against the currency increasing to $6.5
billion, according to central bank data to April 2.	
    The Chilean currency has gained over 7 percent this
year, buoyed by signs of economic recovery in the United States
and dwindling euro zone debt worries, but positions taken by
foreign investors and held by local banks against the peso have
accelerated in recent months. 	
    "This is probably reflecting recent uncertainty, but as
expectations of a rate hike grow, bets against the peso will
recede," said Ruben Catalan, economist with Bci Estudios
brokerage in Santiago.	
 	
    The Chilean central bank is expected to maintain its
'wait-and-see' mode, holding rates at 5.0 percent in coming
months as it weighs an uptick in domestic inflation against
lingering global demand risks to the export-dependent country.	
    The bank on Tuesday raised its 2012 economic growth and
inflation forecasts on signs a global slowdown is less severe
than expected, bolstering views a rate increase forecast by
year-end could come sooner than expected. 	
    But before being affected by rate expectations, the peso is
expected to further weaken from its preliminary 483.60 per
dollar Wednesday close, traders say.	
    Bets against the peso also gathered steam as pension funds
and other local institutions have recently taken up foreign
exchange coverage with Chilean banks, which subsequently sold
dollars abroad to avoid currency imbalances, thus generating
more demand for greenbacks.	
    A drop in prices for top export copper, which on
Wednesday peeled back from near two-month highs, on a rising
dollar and disappointment over the U.S. Federal Reserve's
retreat from another round of monetary stimulus, could further
hit the Chilean currency. 	
    Latin America's most traded currencies also weakened on
Wednesday, hit by new concerns over the health of the global
economy. 	
    Net positions against the Chilean currency are at their
highest since Oct. 6, when they reached $6.5 billion.
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