Brazil’s Real Falls on Concern Rousseff Faces New Budget Setback

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Brazil’s real dropped from a one-week high on concern President Dilma Rousseff is facing another setback in her effort to pare budget deficits and preserve the nation’s credit rating.

The currency erased its gain after Folha de S.Paulo reported that the Senate won’t vote on legislation that would bolster revenue by allowing Brazilians to repatriate as much as 300 billion reais ($93 billion) without facing criminal charges of tax evasion. The administration is trying to persuade lawmakers to curtail spending and raise revenue to shore up finances and avoid a downgrade.

The repatriation bill “is a topic that isn’t easily addressed in Congress, and that spreads some tension among currency traders,” Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo, said by phone.

The real slid 0.2 percent to 3.1401 per dollar at the close of trade in Sao Paulo after earlier advancing 0.6 percent. It rose Monday to 3.1338, the strongest level since July 2.

Concern that Brazil’s economy is falling into a recession remained after the government reported that retail sales declined 0.9 percent in May from the prior month, worse than the median forecast of economists surveyed by Bloomberg, which called for a drop of 0.3 percent.

Brazil’s economic team sees a credit rating downgrade by Moody’s Investors Service as almost unavoidable, Valor Economico reported Tuesday, without saying where it got the information. The government will present fiscal adjustment measures when Moody’s officials visit Brasilia this week, according to Valor.

The currency gained earlier as weakness in the U.S. damped prospects for an increase in interest rates by the Federal Reserve and bolstered demand for riskier assets with better returns.

The country’s central bank extended the maturity on 6,000 currency swap contracts. Earlier this month, it lowered the total amount offered in a rollover from 7,100.

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