Brazil’s Currency Extends Third Weekly Slump as Commodities Drop

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Brazil’s real extended its third straight weekly decline as wagers that the Federal Reserve will start raising interest rates sooner than expected and a decline in commodities made emerging-market assets less attractive.

The real dropped 0.1 percent to 2.6541 per dollar at the end of trade in Sao Paulo, the weakest closing level since April 2005. The currency slid 2.5 percent this week, the biggest decrease in more than a month.

Most developing-nation currencies sank as the Standard & Poor’s GSCI index of raw materials fell 1.4 percent. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among 31 major tenders after the Russian ruble.

“There is a broad risk-off mood among investors in the past few days, and the real is being affected by that,” Paulo Gala, a strategist at Fator SA Corretora de Valores in Sao Paulo, said in a telephone interview. “And the decline in the price of commodities is bad for Brazil as a whole.”

The Ibovespa fell 3.7 percent as a plunge in oil below $58 a barrel sank the shares of state-run Petroleo Brasileiro SA. The benchmark equity closed in a bear market as it extended losses from this year’s high to 22 percent.

Brazil sold today the equivalent of $197.9 million of currency swaps under a program authorized through year-end to support the real and limit import price increases and rolled over contracts worth $490.3 million.

Central bank President Alexandre Tombini said three days ago that policy makers have two weeks to evaluate the intervention, which he said has fully achieved its goals.

Retail Jump

In a sign of economic resilience, the national statistics agency reported today that Brazil’s retail sales jumped 1 percent in October from the prior month. The median forecast of economists surveyed by Bloomberg was for a 0.5 percent increase.

Swap rates, a gauge of expectations for changes in borrowing costs, climbed 0.04 percentage point to 12.55 percent on the contract maturing in January 2016 and were up 0.14 percentage point for the week.

The central bank said in minutes published yesterday that it will carry out additional increases in interest rates with restraint as fiscal policy becomes tighter. It raised the Selic on Dec. 3 by a half-percentage point to 11.75 percent.

While a government report showed last week that consumer prices rose at an unexpectedly slower rate of 6.56 percent in the 12 months through November, the pace still exceeded the official inflation target of 2.5 percent to 6.5 percent.

In the U.S., reports before next week’s Fed meeting showed that the number of Americans filing for unemployment benefits dropped to a three-week low and retail sales advanced the most in eight months.

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