Brazil's Real Falls as China's Weaker Yuan Threatens Exports

  • China moves to weaken currency, increasing concern over growth
  • Emerging-market currencies tumble as commodities at 12-yr low

Brazil’s real declined along with emerging-market currencies after China weakened its yuan, tarnishing the outlook for Brazilian exports to its biggest foreign market.

Global stocks fell and commodities slid after the People’s Bank of China set its daily yuan fixing at the lowest level since 2011. The real lost 0.5 percent to 4.0294 per dollar in Sao Paulo amid speculation prices may drop for the iron ore and soy Brazil sends to China. The S&P GSCI Index of raw materials declined 3.1 percent to a 12-year low.

A gauge of emerging-market currencies dropped to a record on concern China’s move increases the risk that other nations will lower their exchange rates to remain competitive. China is the biggest buyer of the commodities many developing nations rely on to fuel growth, and Brazil is its second-largest supplier of goods from developing nations.

"The rout in commodities and outflows from equities is writing the story this morning," said Ipek Ozkardeskaya, an analyst at London Capital Group. "China’s struggles increase concern there won’t be demand for Brazilian products, which could signal an extended period of contraction in revenue."

Brazil’s economy will shrink 2.95 percent this year, according to the central bank’s weekly survey of economists published Jan. 4, more than the prior estimate of a 2.81 percent contraction. Analysts have lowered their 2016 growth forecast for 13 straight weeks and estimate that gross domestic product contracted 3.71 percent last year.

President Dilma Rousseff’s government is working on structural actions to restore investor and consumer confidence, newspapers Folha de S.Paulo and O Globo said in reports Wednesday, citing people familiar with the talks.

Swap rates on the contract maturing in January 2017, a gauge of expectations on interest-rate moves, declined 0.08 percentage point to 15.52 percent.

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