Sep 20, 2011 SANTIAGO (Dow Jones)--The Chilean peso ended on Tuesday at its weakest level against the dollar since January, as institutional investors snapped up dollars following a long holiday weekend and as international copper prices dropped.
The peso ended 1.8% weaker against the dollar at CLP489.55, a level not seen since the weeks after the central bank started a $12 billion currency intervention program at the beginning of January. The peso ended at CLP480.70 on Friday. The local currency traded in a range of CLP486.00 to CLP490.30. All Chilean markets, banks and government offices were closed Monday for the Independence Day and Army Day holidays.
As Chile is the world's premier copper producer, accounting for a third of global supply, the peso often takes trading cues from the metal's international prices.
Concerns about the financial health of Europe and the International Monetary Fund downbeat view for global growth, pushed international copper prices lower and left "institutional investors scrambling to buy dollars to cover their positions," a local currency trader said.
Dollar buying triggered stop-loss orders, which also helped weaken the peso.
Falling copper prices pressured the peso to lose ground, with the most actively traded copper contract, for December delivery, recently down 0.3% to $3.773 a pound on the Comex division of the New York Mercantile Exchange, after already plummeting 3.8% to an 11-month low on Monday.
"It's automatic, if copper prices drop that sharply, the peso is going to feel the impact," Francisca Roa, an analyst at currency exchange research company Netgociando, said.
Chile's central bank, as part of its ongoing $12 billion currency-intervention program, purchased $50 million Tuesday at an average rate of CLP488.28 to the dollar. It has accumulated $9.20 billion so far this year.
In the fixed-income market, yields on inflation-indexed Chilean central-bank bonds, or BCUs, ended mixed following a scheduled auction of central-bank-issued debt.
The yield on five-year BCU bonds ended unchanged on the day at 2.01%, while the yield on 10-year BCUs closed at 2.30%, from 2.21% the prior session.