Chile's Peso Weakens Against The Dollar, Tracking Copper Prices

SANTIAGO （Dow Jones）--Chile's peso weakened mildly against the dollar Tuesday, as international copper prices fell.

The peso ended at CLP492.60 to the dollar, compared with Monday's close of CLP491.70, while trading in a range of CLP491.70 to CLP493.65.

As Chile is the world's largest copper producer, accounting for nearly a third of global supply, the peso often takes trading cues from the metal's international prices. In London trading, spot copper prices fell 1.9% to $4.23202 a pound, according to Chile's state copper commission Cochilco, as Chinese investors remained firmly in the background and the market scrambled for direction.

The peso didn't weaken further, however, after nearing a level of support at CLP494 and on expectations that the central bank likely won't implement additional currency intervention measures.

Central bank president Jose De Gregorio told Dow Jones Newswires in an interview Monday that capital controls weren't currently needed.

"We believe De Gregorio's comments suggest a diminished risk of any additional forex intervention or capital flow restrictions being announced," RBC Capital Market said in a note to clients.

De Gregorio's comments likely also point to the central bank increasing interest rates at its next monthly monetary policy meeting.

"The peso's fall was buffered by expectations that the central bank is probably going to increase rates at its next meeting," said Osvaldo Molina, currency trader with local brokerage and investment bank Larrain Vial.

Earlier this month, the bank kept the benchmark overnight rate at 3.25%, in a move most participants saw as intended to support its recently announced currency intervention program.

On Tuesday, the central bank, as part of its $12 billion currency market intervention program for 2011, purchased $50 million on the local market at an average rate of CLP492.44. It has accumulated purchases for $750 million so far through the program.

During the first phase of the bank's intervention program, the central bank will make daily purchases of $50 million between Jan. 5 and Feb. 9.

With exporters demanding help as the peso reached a 32-month high by the beginning of the year, the central bank announced in early January a program to increase its foreign currency reserves to the equivalent of 17% of gross domestic product.

Exporters argued the strength of the peso ate away at the competitiveness of their products abroad.

In the bond market, yields on inflation-indexed Chilean central bank bonds, or BCUs, ended mixed in thin over-the-counter trading.

The yield on five-year BCU bonds ended at 2.68%, from 2.70% Monday, while the yield on 10-year BCUs closed at 3.15%, from 3.12% the prior session.