Brazil’s real rose for the first time in five days as the Senate’s approval of a reduction in unemployment benefits overshadowed concern that Finance Minister Joaquim Levy’s budget measures still face political obstacles.
Overseas holdings of futures contracts wagering against the real had risen 9 percent to $37 billion since the lower house passed the labor legislation three weeks ago. President Dilma Rousseff dismissed on Wednesday reports that Levy and Budget Minister Nelson Barbosa are at odds over economic policy.
“Investors remain on alert regarding any development on the political front,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said by telephone. “We should see high volatility with the currency.”
The real climbed 0.4 percent to 3.1397 per U.S. dollar at the close of trade in Sao Paulo after earlier dropping 1 percent. Bets against the currency by foreigners rose to a record $38 billion last month. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among 16 major tenders.
The Senate voted 39-32 Tuesday night to support a bill making it harder to draw unemployment benefits, sending it to Rousseff for final authorization. Levy must now persuade the Senate to approve limits on retirement benefits and an increase in import taxes as part of an effort to cut deficits and preserve the nation’s credit rating.
Last week, Levy skipped a press conference at which Barbosa announced a spending freeze of 69.9 billion reais ($22.2 billion). The finance minister had advocated a cut of at least 75 billion reais, a government official with knowledge of the negotiations said before Barbosa made the announcement.
The real will probably weaken beyond 3.32 per dollar before September, Bernd Berg, an emerging-market strategist at Societe Generale SA in London, wrote in a research note to clients. The currency last approached that level in March.
The central bank faces a decision on the June rollover of currency swaps after it reduced the amount for this month and halted sales supporting the real in March. Brazil extended the maturity on contracts worth $395.4 million Wednesday.
Swap rates, a gauge of expectations for Brazil’s borrowing costs, climbed 0.05 percentage point to 13.33 percent on the contract maturing in January 2017.