Brazil Real Rises to Six-Week High as China Boosts Trade Outlook

The real rallied to its highest level in six weeks as signs of economic strength in China, Brazil’s biggest trading partner, bolstered the central bank’s efforts to support the currency.

The real climbed for a fourth straight day, gaining 0.2 percent to 2.2709 per U.S. dollar at 11:07 a.m. in Sao Paulo, the strongest level on a closing basis since July 29. Swap rates on the contract due in January 2015 rose three basis points, or 0.03 percentage point, to 10.32 percent after a report showed higher-than-forecast inflation.

The currency appreciated as China’s industrial output grew at the fastest pace in 17 months in August, boosting trade prospects for the Latin American nation. Brazil’s central bank sold $497 million of foreign-exchange swap contracts today, part of a $60 billion intervention program to support the real announced last month.

“We’re having a series of good economic indicators, principally from China,” Francisco Carvalho, currency director at Liquidez Dtvm in Sao Paulo, said in a telephone interview. “The central bank is continuing its swap auctions even with the dollar falling.”

The real also gained along with other emerging-market currencies as U.S. President Barack Obama told ABC News that an attack “absolutely” would be put on hold if Syria followed a proposal from Russia to surrender its chemical weapons.

Brazil’s IGP-M inflation index of wholesale, construction and consumer prices climbed 1.02 percent in the 10 days beginning Aug. 21, the Getulio Vargas Foundation reported today. The median forecast of 13 economists surveyed by Bloomberg was for 0.67 percent increase.

‘Hitting Prices’

Accelerating wholesale inflation indicates that the real’s 5.5 percent decline in the past three months is making products more expensive, according to Carvalho.

“The jump shows the dollar is already hitting prices,” he said. “We have to wait and see if this pass-through inflation will affect consumers.”

Inflation of consumer prices as measured by the IPCA index decelerated in August to 6.09 percent, the slowest since December, the national statistics agency said Sept. 6. The central bank’s annual inflation target is 2.5 to 6.5 percent.

Policy makers voted in August to raise the target lending rate to 9 percent from 8.50 percent, marking the third straight increase of 50 basis points. Brazil has lifted borrowing costs by 175 basis points since April from a record low 7.25 percent, the fastest pace of rate increases among major economies.

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