G7 provides support for Real – Chilean Peso up on rising equities

10-05-2009 08:52

Last week, the Brazilian Real lost against the US Dollar ahead of the Group of 7 finance ministers assembly, while it now creates a favorable scenario for higher return currencies to gain, driving the Brazilian currency in Forex markets. Chilean equities gained more than 1% today, reaching rates close to the highest levels in two years on the back of climbing stocks worldwide providing support for retail and commodity equities, according to currency traders.

G7 support Real

The Brazilian currency reached an one-year peak against the Greenback and rose against the majority of the key currencies as central bankers of the world wealthiest nations reduced the significance of a strong US Dollar to guarantee a fast and sustainable global economic recovery, resulting in positive circumstances for higher-return currencies in emerging markets, which rose against the US Dollar this Monday.

Up on equities

The Chilean IPSA Index (Santiago Stock Exchange) gained 1.2% to 3,390.72, as the IGPA General rose 1% to 15,957.60.
Roberto Guzman, head of investment at the FIT Research brokerage in Santiago, commented: “The American market corresponds with the IPSA climb and equities that have a strong influence on markets, like Copec SA, Soquimich Comercial SA and Enersis SA, all performed solidly.”
Soquimich S. A. (SQM), the world leader in the production and distribution of specialty fertilizers, iodine, and lithium, posted the biggest gains and climbed almost 2% to 21,978 Pesos. The Chilean regional energy group Enersis ENE S.A. rose over 2% to 7147.60 Pesos.

Chilean Peso

Previously this Monday, the Chilean Peso dropped and reached the weakest levels in seven weeks, due to overseas investors purchasing US Dollars in Chili to invest in nations that show strong interest levels, mainly in South America’s wealthiest nation, according to currency traders.
For the first time in several months, investors obtained US Dollars in the local market, profiting from weak borrowing rates. Nevertheless, currency analysts expect the trend to weaken since they believe that Banco Central de Chile, Chili’s central bank, will raise its interest rate next year as the economy improves.

Carry trade

Investors opt for borrowing in countries that show low interest rates and invest in higher-yielding markets (the so called ‘carry-trade strategy’).
The Chilean Peso dropped 0.5%, reaching 556.50/557.0 per US Dollar in comparison to Friday’s closing rate of 553.70/554.20, while it rose 15.18% versus the Greenback in 2009, while the Peso fell 22.3% in 2008.
A Chilean trader, who preferred to be anonymous, commented: “The Chilean Peso is preserving the current levels as a result of carry trading, mainly ignoring positive external circumstances that usually impact Chili’s currency.”