- Investors see the currency strengthening in the longer term
- Confidence in new government shadows central bank intervention
Brazil’s real advanced as confidence that the new administration will be able to revive the economy overcame central bank intervention to weaken the currency.
The real gained 0.5 percent to 3.2565 per dollar on Friday. It fell as much as 0.6 percent earlier after the central bank placed all 10,000 reverse swaps contracts it offered, equivalent to buying $500 million in the futures market.
Policy makers are trying to keep a lid on the rally in the real, the world’s best performing currency this year amid speculation that Acting President Michel Temer will trim a budget deficit, end credit-rating downgrades and restore confidence in Latin America’s largest economy. Concern that the currency’s rally would hamper exports has led the central bank to sell almost $50 billion of reverse swaps to stem gains.
"The real is set to strengthen in the longer term, and this is offsetting any dollar rally," said Jefferson Rugik, a currency trader at Correparti Corretora de Cambio. "No one is building strong positions favoring a weaker real, so any move to this side is very fragile."
A Bloomberg gauge of emerging-market currencies dropped 0.2 percent.
The cost of hedging Brazilian dollar-denominated bonds against losses in the credit-default swaps market for five years declined 2.2 basis points to 286.6 basis points. Buying the real with borrowed dollars in a carry trade has returned 30 percent this year, the most among 42 currencies tracked by Bloomberg.
Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, rose 0.06 percentage point to 12.84 percent.