Brazilian Real Declines to One-Week Low as Trade Surplus Narrows

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Brazil’s real dropped to a one-week low as the South American nation posted a trade surplus that was about a third of the previous level, reviving concern that inflows are diminishing amid economic weakness.

“Even though the real is considerably cheaper in the recent months, we don’t see exports picking up as much as desirable,” Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said in a telephone interview. “We recognize a widespread bad sentiment even among exporters.”

The real decreased 0.5 percent to 3.1269 per dollar at the close of trade in Sao Paulo, the weakest level on a closing basis since June 5, after climbing 0.8 percent. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, climbed to 17.12 percent from last week’s 16.73 percent, which was the lowest since Feb. 5.

The government posted a trade surplus of $678 million for the week ended June 14, compared with $1.98 billion in the prior period. The real climbed earlier on enhanced prospects for the nation’s inflows as Embraer SA announced orders for regional jets worth $2.6 billion.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s borrowing costs, increased 0.18 percentage point to 14.06 percent, a six-year high.

Policy makers voted unanimously this month to lift the benchmark lending rate by 0.5 percentage point to 13.75 percent, the highest level since 2009. As inflation remains above target, Brazil is the only member of the Group of 20 nations raising borrowing costs this year.

GDP Outlook

Analysts are becoming more pessimistic about the economy. Gross domestic product will contract 1.35 percent in 2015 before expanding 0.9 percent next year, according to the median of about 100 estimates in a central bank survey published Monday. Previously, they predicted a contraction of 1.30 percent this year and a 1 percent expansion in 2016.

In a positive sign for trade, executives at Embraer announced Monday at the Paris Air Show deals with United Continental Holdings Inc. and other foreign buyers, cementing its standing as the biggest maker of regional jets.

Brazil extended the maturity Monday on 6,300 foreign-exchange swap contracts worth $308.9 million, compared with 8,100 daily last month.

The central bank monitors hedge demand and not the exchange rate when preparing swap offerings, a member of President Dilma Rousseff’s economic team said last week. Policy makers consider risks to financial stability, according to the official, who asked not to be identified because the discussions aren’t public.

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