Brazil’s real climbed as speculation that the Federal Reserve will keep interest rates low for a longer period of time amid slower U.S. job growth made emerging-market assets more attractive.
The real advanced for a second straight day, rising 0.7 percent to 3.0347 per dollar at the end of trade in Sao Paulo. The currency climbed 6 percent in April, its first monthly advance since August.
After Brazil’s central bank increased its target lending rate last month to a six-year high of 13.25 percent, a report Wednesday indicating that U.S. companies added the fewest workers since January 2014 raised the prospect of the benchmark federal funds rate staying near zero for most of the year. Carry trades in which investors bought the real with borrowed dollars returned 7.1 percent in April, the most among 16 major currencies tracked by Bloomberg.
“There is a chance the Fed tightening will be postponed even beyond the end of 2015, which makes higher-yielding assets more attractive,” Ipek Ozkardeskaya, an analyst at London Capital Group, said by e-mail.
Under carry trades, investors get funds where rates are low, including the U.S., and buy assets in nations that offer larger yields.
The currency also rose after Enio Verri, a lawmaker, said members of the ruling party would support the government’s efforts to shore up finances and preserve the nation’s investment-grade credit rating. Brazil’s lower house delayed a vote on a reduction in labor benefits Tuesday.
“This eases market jitters,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in an e-mailed response to questions.
Earlier, the real dropped as Brazil’s industrial production fell 0.8 percent in March from the previous month, a bigger decline than economists had forecast.
The cost of hedging against moves in the real versus the dollar has jumped more than for all major currency pairs this year following a volatility increase. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, is the highest among 16 major currencies tracked by Bloomberg.
Swap rates, a gauge of expectations for Brazil’s borrowing costs, dropped 0.01 percentage point to 13.50 percent on the contract maturing in January 2017.
The real tumbled 2.3 percent Monday as Brazil began the week rolling over fewer swaps supporting the currency after sales halted in March. It extended the maturity on $395.4 million worth of contracts Wednesday.