Brazil's Real Joins Global Selloff on Fed Wagers, Commodity Rout

  • Dollar rallies on speculation Fed to lift rates this month
  • Emerging-market currencies tumble to lowest level on record

Brazil’s real followed a slump in major currencies as traders bolstered bets on higher U.S. interest rates reducing the appeal of emerging-market assets and as commodities tumbled.

The real dropped 0.4 percent to 3.7684 per dollar as a gauge of 20 developing-nation currencies sank to a record low on wagers the Federal Reserve will raise borrowing costs Dec. 16 and then undertake as many as two more increases in the next year. Oil fell to a six-year low, while copper and gold plunged, pulling the currencies of commodity-producing nations down. The global rout added to an already turbulent scenario in Brazil, where President Dilma Rousseff faces the threat of an impeachment.

"The political uncertainties are still hanging on the wall," said Ipek Ozkardeskaya, an analyst at London Capital Group. "The Fed, the slide in oil and metal prices also weigh on the sentiment."

The real has tumbled 29 percent this year, the most among major currencies, on concern that higher U.S. rates, a slowdown in China and Brazil’s political turmoil could exacerbate a recession and cause the nation’s finances to deteriorate further. Moody’s Investors Service and Fitch Ratings have said that the process to oust Rousseff may add to the uncertainties, further hurting Latin America’s largest economy.

Rousseff said Dec. 5 that the impeachment request filed against her last week has no valid basis to move forward, and she expects full support from Vice President Michel Temer. Speculation that his party may be looking to withdraw support for Rousseff increased after a minister reportedly asked to resign. The PMDB is the largest party in the Lower House and is seen as key to impeachment voting

The currency rallied earlier Monday amid speculation that an increase in mergers and acquisitions would bolster the real.

"There are many deals that could close sometime soon and contribute to a strong inflow of dollars," said Joao Pedro Brugger, a money manager at Leme Investimentos in Florianopolis, Brazil, which oversees about 500 million reais in assets. "Brazilian assets attracting foreign buyers is helping keep the real above 4 per dollar.”

Banco BTG Pactual, whose chairman and chief executive officer was arrested last week, is selling assets that include stakes in Swiss asset-manager BSI, retailer Uniao de Lojas Leader SA, physical-fitness chain Bodytech Participacoes SA and distressed-asset-management firm Recovery do Brasil, it said in a regulatory filing Dec. 4. The firm last week sold a stake in Rede D’Or Sao Luiz SA, Brazil’s biggest hospital chain, for 2.38 billion reais ($640 million).

Beef producer Minerva SA said in a regulatory filing it is in talks with possible business partners after newspaper O Estado de S.Paulo reported that Saudi Arabia’s Salic fund was interested in the company.

Brazilian analysts expect the economy to contract 3.5 percent this year and 2.31 percent in 2016, compared with a previous predictions of a 3.19 percent and 2.04 percent drop, a central bank survey released Monday shows.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, fell 0.03 percentage point to 15.74 percent.

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