Brazilian Currency Rises to Six-Week High on Fed Policy Outlook

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Brazil’s real climbed to a six-week high after a disappointing U.S. housing report added to speculation that the Federal Reserve will keep borrowing costs low for a longer period of time, supporting emerging markets.

The currency rose for a third straight day, advancing 0.3 percent to 3.0205 per dollar at the close of trade in Sao Paulo. It earlier rallied to 2.9987 per dollar, marking the first time since March 6 that it traded stronger than 3 per dollar.

Most developing-nation currencies gained after the U.S. government said housing starts rose less than forecast in March, supporting the case for the Fed to refrain from a tightening of policy. The real remained the most volatile among 16 major dollar counterparts, falling earlier on speculation that Brazil’s central bank will reduce rollovers of foreign-exchange swaps that were sold to support the currency.

“There is a growing feeling among investors and traders that it will take longer for the Fed to raise rates, and that benefits most emerging-market currencies,” Reginaldo Siaca, a currency manager at TOV Corretora de Cambio in Sao Paulo, said in a telephone interview.

The real added 5.8 percent in April as party leaders in Brazil’s ruling coalition agreed last week to support the government’s budget plan after Vice President Michel Temer took over negotiations with lawmakers. The gain this month is the biggest among 16 major currencies.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s borrowing costs, increased 0.07 percentage point to 13.02 percent.

The central bank extended the maturity of currency swap contracts worth $518.3 million Thursday. Brazil halted at the end of March the sale of the swaps, which supported the real and limited import price increases.

“The debate among traders on a potential reduction of the swap rollover is back even though it isn’t the main focus of discussions yet,” Ronaldo Guimaraes, a portfolio manager at Modal Asset Management Ltda. in Rio de Janeiro, said in a telephone interview.

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