Latin America Currencies: Chilean Peso Drops to Three-Year Low

By Drew Benson

Oct. 1 (Bloomberg) -- Chile's peso slid to the weakest in more than three years on concern a global economic slowdown will undermine demand for Latin American commodities.

Forecasts for the price of copper, Chile's top export and a key source of government revenue, were lowered by Triland Metals Ltd. on reduced economic prospects for the U.S., the world's second-largest user of industrial metals. Manufacturing in the U.S. contracted during September at the fastest rate since the last recession, according to a report today.

The peso dropped for a fourth straight day, sliding 1.3 percent to 559.45 per dollar at 4:43 p.m. in New York, from 552.11 yesterday. It touched 560.85, the weakest level since August 2005.

The Chilean peso led a decline among most Latin American currencies. Emerging market currencies have slumped amid concern that a proposed $700 billion bailout of the U.S. banking system won't be enough to keep the world's largest economy from lapsing into a recession and weighing on global growth.

``Investor are starting to reconsider the heightened risk of a global recession,'' said Win Thin, a senior currency strategist with Brown Brothers Harriman & Co in New York. ``That is bad for exports in Asia and commodities in Latin America.''

Copper for delivery in three months will average $7,000 a metric ton to $7,200, down from a July forecast of $7,400 to $7,600, said Michael Khosrowpour, a trader at London-based Triland, one of 12 companies trading on the floor of the London Metal Exchange.

Chilean Bonds

The yield for a basket of Chile's five-year peso bonds in inflation-linked currency units, known as unidades de fomento, decreased 8 basis points, or 0.08 percentage point, to 3.09 percent, according to Bloomberg composite prices.

The Institute for Supply Management's U.S. factory index dropped to 43.5, the lowest level since October 2001, the Tempe, Arizona-based group reported today. A reading of 50 is the dividing line between expansion and contraction.

In Colombia, the peso snapped a three day slide, gaining on the dollar as pension funds dropped dollar positions and sought peso-denominated assets, said Daniel Arguelles, a senior currency trader with Bogota-based brokerage Corredores Asociados.

The peso climbed 1.35 percent to 2,155 per dollar from 2184.5 yesterday, according to the Colombian foreign-exchange electronic transactions system, known as SET-FX.

``The overnight deposit rates have being going down and that what has given a little bit of space to the market and that's why people are selling dollars, Arguelles said. ``Sovereign bond yields have been going down in terms of yields as well and that means pension funds are repositioning into more local and less dollar-denominated assets.''

`Depends on The Bailout'

The road ahead ``depends on the bailout,'' with the peso rising to 2,100 per dollar with a deal or falling to 2,200 without one, he added.

The yield on Colombia's benchmark 11 percent bonds due in July 2020 slid 6 basis points to 11.938 percent, according to Colombia's stock exchange. The price rose 0.330 centavo to 94.122 centavos per peso.

Argentina's peso declined for a sixth day to 3.1345 per dollar from 3.1341 yesterday.

The yield on Argentina's 5.83 percent peso bonds due in 2033 rose 21 basis points to 11.28 percent. The bond's price slid 1.85 centavos to 94.755 centavos per peso, according to Citigroup Inc.'s local unit.

Argentine Buyback

Argentina announced it will repurchase tomorrow up to 100 million pesos ($32 million) of peso- and dollar-denominated bond warrants tied to economic growth, part of a buyback program began in August. The offer closes at 1 p.m. New York time tomorrow.

The Peruvian sol strengthened for a second day, rising 0.4 percent to 2.9701 per dollar, from 2.9825 yesterday. Peru's central bank added 2.6 billion soles ($870 million) in reserves to the banking system through overnight and one-week repurchase, or repo, agreements.

The bank said it added 1.1 billion soles overnight at 6.8 percent and another 1.5 billion soles in one-week repos at 6.92 percent. The central didn't buy or sell dollars today, after selling a record $2.0076 billion last month to shore up the sol.

The yield on Peru's benchmark 8.6 percent sol-denominated bond due in August 2017 rose 12 basis points to 8.62 percent, according to the local unit of Citigroup Inc.

Venezuela's bolivar weakened 1.1 percent to 4.55 per dollar in the unregulated market from 3.33 yesterday, traders said. The government pegs the currency at an official exchange rate of 2.15 per dollar under restrictions imposed in 2003. Venezuelans turn to the parallel market when they can't get government approval to buy dollars at the official rate.

To contact the reporter on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net