Brazil Real Leads Global Losses as Commodities Extend Declines

  • President Dilma Rousseff reiterates refusal to resign
  • Economists in survey cut forecasts for growth, interest rate

Brazil’s real led losses among major currencies as commodities fell, undermining the prospects for the country’s exports. The currency also weakened as President Dilma Rousseff vowed never to resign, dashing hopes of a quick change in government that the market is rooting for.

The real fell 1.3 percent to 3.5995 per dollar at 1:01 p.m. in Sao Paulo, the worst performance among the world’s 16 most-traded currencies. The Australian dollar and Colombian and Mexican pesos also slipped. One-month implied volatility of the real rose 1.85 percentage point to a five-month high of 23.845 percent.

Oil slid after Saudi Arabia’s deputy crown prince said the country would freeze output only if Iran does too, casting doubt on a deal between the two countries. The comments helped end a rally in oil that has supported a 4.5 percent gain in developing-country currencies this year.

"Most emerging-market currencies are down today due to the small correction in commodity prices -- the real is no exception and is also losing steam," said Arnaud Masset, an analyst at Swissquote Bank SA in Gland, Switzerland. "The real has gained a lot this year with the market viewing the current political mess in a favorable light as it could potentially result in a political shake-up that might unlock the situation."

The real’s 10 percent gain this year is the biggest among 150 currencies worldwide, bolstered by speculation that Rousseff will lose her battle to stay in office. Brazilian traders have been betting that a new government would end the political paralysis that has hampered efforts to respond to the worst recession in decades.

Economists in a central bank survey published on Monday forecast the economy will shrink 3.73 percent this year, more than the 3.66 percent they expected a week earlier. They lowered their forecast for the benchmark rate for the first time in four months and now expect 0.5 percentage point of cuts by the end of the year to 13.75 percent.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, were unchanged at 13.78 percent.

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