Brazil Real Rises as China's Intervention Boosts Demand for Risk

  • China steps up yuan defense, buying the currency in Hong Kong
  • Currency was worst performer among major markets last year

Brazil’s real advanced amid improved appetite for riskier assets as China stepped up its defense of the yuan.

China repeatedly intervened in the offshore yuan market on Tuesday, causing the cost of borrowing yuan in Hong Kong to surge and making it more expensive to bet on depreciation. The intervention helped stabilize Chinese stocks and mitigate concern that turmoil in the nation’s stocks and currency would spread.

The real gained 0.6 percent to 4.0277 per dollar at the close of trading in Sao Paulo on Tuesday.

"Sentiment has improved surrounding China, bringing financial markets to calmer water and that helps currencies such as the real," Georgette Boele, an analyst at ABN Amro Bank NV, said from Amsterdam.

In Brazil, credit-rating downgrades, forecasts for the worst economic contraction in a century and a deteriorating fiscal outlook helped push the real down 33 percent last year, the most among the world’s 16 most-traded currencies. Efforts to bolster growth and shore up government finances have been hindered by political gridlock as some lawmakers try to impeach President Dilma Rousseff.

The corruption probe that has engulfed state oil company Petroleo Brasileiro SA and Brazil’s largest construction companies escalated with Senate President Renan Calheiros and former President Luiz Inacio Lula da Silva being cited during investigations, according to reports in Valor Economico and Folha de S. Paulo newspapers.

Former Petrobras director Nestor Cervero, who was charged in the Carwash probe, is said to have linked Lula to a loan that’s being investigated and may have illegally benefited Rousseff’s Worker’s Party, according to Folha.

Lula’s institute said it doesn’t comment “on illegal, selective and partial leaks of alleged accusations that feed a plea bargain market without proof and in exchange for penal benefits,” according to an e-mailed statement. Calheiros, through his press office, denied allegations of wrongdoing.

While news out of China offered some relief for Brazil’s currency, “the downside risks prevail for the real,” said Ipek Ozkardeskaya, an analyst at London Capital Group. "The market will hardly let the dollar cheapen below the 4 real mark."

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s interest rates, declined 0.80 percentage point to 15.52 percent.

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