Brazil Real Advances With Emerging Markets as Commodities Rally

  • Currency is still down 2.2% this year on China growth fears
  • S&P GSCI Commodity index rises 0.8% as crude oil advances

The real gained along with emerging-market currencies worldwide as commodities advanced, offsetting concern about the recession in Brazil and a slowdown in China’s economy.

The Brazilian currency advanced 1 percent to 4.0514 per dollar in Sao Paulo, after falling as much as 0.8 percent. Local markets were closed Monday because of a holiday. A gauge of 20 emerging-market currencies gained 0.5 percent, while the S&P GSCI Commodity index rose 1.8 percent on Tuesday after falling 2.4 percent on Monday. Commodities account for about half of Brazil’s exports.

"Brazil’s real is now gaining much in line with other emerging-market currencies," said Joao Paulo de Gracia Correa, a foreign-exchange director at SLW Corretora de Valores in Curitiba, Brazil. "We will have investors watching developments on the local front next month, when Congress is back and we will be looking for improvements on the fiscal side."

The currency is still down 2.2 percent this year, amid growing concern that the economy will further slow in China, Brazil’s biggest trading partner. Credit-rating downgrades to junk, the economic slump and a deteriorating fiscal outlook helped drive a 33 percent plunge last year, the most among the world’s 16 most-traded currencies.

The real declined earlier as the Shanghai Composite Index tumbled to the lowest since December 2014 on concern capital outflows will accelerate as China’s economy slows. Investors were also concerned about a possible liquidity squeeze even as the Chinese central bank flooded the financial system with cash before the Lunar New Year Holidays that start next month.

Brazil’s current account deficit narrowed by almost half last year, as the nation’s worst recession in decades and a falling currency sapped demand for imports, the central bank said Tuesday.

The deficit in the current account, the broadest measure of trade in goods and services, was $58.9 billion in 2015, compared to $104 billion the previous year. The gap in December shrank to $2.5 billion, in line with the median forecast of analysts surveyed by Bloomberg.

Latin America’s biggest economy will shrink 3 percent this year, according to the central bank’s weekly economists survey published on Monday, compared with a prior estimate of a 2.99 percent contraction. Analysts also cut the forecast for growth next year to 0.8 percent from 1 percent.

Swap rates on the contract maturing in January 2017, a gauge of expectations on interest-rate moves, fell 0.12 percent to 14.73 percent.

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