Chile's Peso Closes At Fresh 2-Month High As Copper Surges

Chile's peso ended at a fresh two-month high Thursday, as international copper prices surged and looked determined to retake the $10,000-a-metric-ton mark again.

The peso ended at CLP460.90 to the dollar, versus Wednesday's close of CLP463.80, while trading in a range of CLP460.80 to CLP463.80.

As Chile is the world's largest copper producer and exporter, accounting for a third of global supply, the peso often takes trading cues from the industrial metal's international prices.

Three-month copper on the London Metal Exchange, ended 2.3% higher at $9,739 per ton, after hitting a three-month high earlier in the session, as workers continued to strike at Freeport-McMoRan Copper & Gold Inc.'s massive Grasberg mine in Indonesia and workers at all of Chilean state copper giant Corporacion Nacional del Cobre's, or Codelco, mines were scheduled to strike Monday.

"With copper prices where they are and looking to go higher as a strike at Codelco looms, it's no surprise that the peso continues to gain," said Sergio Tricio, studies head at Forex Chile.

Additionally, the government's recent announcement that it will use money from one of the nation's two sovereign wealth funds--the Economic and Social Stabilization Fund, or FEES by its Spanish abbreviation--to help create a $4.0 billion education fund, also boosted the peso.

The FEES is where Chile saves part of the windfalls from its copper exports.

"Although it's unclear how much money the government will actually use from the FEES, speculation in the market abounds, and that likely added pressure for the peso to appreciate," said Tricio.

Additionally, the euro's rise against the dollar--after European Central Bank President Jean-Claude Trichet was more supportive of the euro zone's sovereign-debt woes than some had feared--also boosted the peso.

As Chile is highly export dependent and a third of the Andean nation's exports are bound for European ports, the peso often moves in the same direction as the common currency does against the dollar.

The central bank, as part of its ongoing $12 billion currency-intervention program, purchased $50 million on Thursday at an average rate of CLP461.78 to the dollar, having accumulated $6.50 billion so far this year.

In the bond market, yields on inflation-indexed Chilean central bank bonds, or BCUs, ended higher after banks' stop-loss orders were triggered.

The yield on five-year BCU bonds at 2.72%, from 2.69% on Wednesday, while the yield on 10-year BCUs closed at 2.95%, from 2.94% the prior session.