Brazilian Real Rises as Commodity Rally Offsets Political Woes

  • Currencies of raw-material exporting nations advance with oil
  • Newspapers say fewer lawmakers support impeaching president

Brazil’s real rose as a rally in commodity prices offset speculation that support for President Dilma Rousseff’s ouster is diminishing.

The real advanced 1 percent to 3.6418 per dollar Wednesday, after earlier falling as much as 0.8 percent. It has gained 8.8 percent this year amid speculation that a change in government would halt the political paralysis that’s prevented the approval of measures to boost an anemic economy. One-month implied volatility for the currency, a measure of anticipated swings, was the highest in emerging markets.

"The advance in commodities is bringing some relief, while the focus on the domestic front remains on politics," said Joao Paulo de Gracia Correa, head of foreign currency at brokerage SLW in Curitiba, Brazil.

Currencies of commodity exporting nations gained as oil jumped after U.S. crude stockpiles dropped from the highest level in more than eight decades and copper advanced. The real declined earlier Wednesday after newspaper O Estado de S.Paulo reported that the number of lawmakers in favor of impeachment had fallen. Traders fear that failure to dismiss Rousseff will mean Brazil’s political turmoil drags on even longer, hampering efforts to tackle the deepest recession in a century.

The probability of Rousseff being impeached has fallen to 60 percent from up to 70 percent last week, according to political consulting firm Eurasia Group. The government is negotiating “highly-prized” ministries to garner support from other parties and has been reasonably effective in its defense, it said in a note to clients.

"The political backdrop remains extremely fluid and local markets will be extremely volatile,” said Mike Moran, the head of economic research for the Americas at Standard Chartered Plc in New York.

Brazil posted a foreign exchange inflow of $371 million from March 28 to April 1, versus a $1.5 billion outflow the previous week, according to data from the central bank released Wednesday. The outflow so far this year has been $10 billion, compared with an inflow of $5.1 billion in the same period last year.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, rose 0.04 percentage point to 13.84 percent.

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