Brazil Real Drops as Corporate Selling Outweighs Politics

Is It Time to Bet on Brazil's Turnaround?
  • Crude oil pared gains after U.S. data show stockpiles climbed
  • Currency rose before as central bank refrains from intervening

Brazil’s real dropped as traders said companies bought dollars to send money abroad, overshadowing speculation former bank chief Henrique Meirelles would become finance minister if President Dilma Rousseff is ousted.

The currency lost 0.2 percent to 3.5378 per dollar as of 12:38 p.m. in Sao Paulo, paring this year’s gain to 12 percent. The real is the best performing currency among its most-traded counterparts this year on wagers that an impeachment would usher in a new government better able to pull the country out of its worst recession in a century. 

“There were some one-off dollar outflows amid low trading volume,” said Ricardo Gomes da Silva, a foreign-exchange director at Correparti Corretora de Cambio in Curitiba, Brazil. “Still, the focus remains on Brazil’s politics and the central bank should keep acting anytime the real appreciates above 3.5 per dollar."

Other Latin American currencies also weakened Wednesday as oil pared gains after a government report showed that U.S. crude stockpiles climbed.

The real earlier strengthened as the central bank held off on selling reverse swaps that tend to weaken the currency. Beginning March 21, policy makers re-introduced a program created in 2005 to slow the real’s appreciation and have since sold $34 billion of reverse swap contracts, which are the equivalent of buying dollars in the futures market. On Tuesday, Brazil’s Vice President Michel Temer told O Globo newspaper that Meirelles would become his finance chief if Rousseff is impeached, which also gave a boost to the currency.

“Meirelles is a good name, a name that markets will respond well to,” said Mike Moran, the head of economic research for the Americas at Standard Chartered Plc, which gets more than half its revenue from emerging markets. “The absence of more reverse swaps suggests the central bank is comfortable with the real in a 3.4-3.6 range for now.”

One-month implied volatility rose 0.5 percentage point to 19.35 percent, the highest among the 16 most traded currencies. The cost of insuring Brazilian bonds in the credit-default swaps market for five years declined 3.9 basis points to 344.2 basis points.

Brazil’s central bank will hold the benchmark Selic rate at 14.25 percent for the seventh consecutive meeting on Wednesday, according to all 49 economists surveyed by Bloomberg.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest rates, increased 0.06 percentage point to 13.605 percent.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE