Brazil Real Rises to Two-Week High on Outlook for U.S. Stimulus

Brazil’s real rose to a two-week high as the U.S. government shutdown encouraged speculation that the Federal Reserve will sustain a stimulus program that has supported emerging-market assets.

The currency appreciated 1.1 percent to 2.1917 per U.S. dollar, the strongest closing level since Sept. 18. Swap rates on the contract due in January 2017 dropped 11 basis points, or 0.11 percentage point, to 11.37 percent. Central bank President Alexandre Tombini said he seeks to bring inflation as close as possible to the government’s target of 4.5 percent in 2014.

The real has rallied 11 percent since Aug. 22, when Brazil’s central bank announced a $60 billion intervention program to support the currency and curb inflation. The gain is the biggest among all of the world’s dollar counterparts tracked by Bloomberg.

“The market believes that the greater the economic cost of the shutdown, the less likely the Fed is to taper stimulus,” Vladimir Caramaschi, the chief strategist at Credit Agricole Brasil SA in Sao Paulo, said in a phone interview. The intervention “is also favoring appreciation.”

The central bank sold all 10,000 of foreign currency swap contracts offered today worth $498 million.

Tombini said in an interview in London that he intends to “complete one more year with inflation in line with our regime, as slow as possible, as close to the target as possible, and the economy on a sustainable trajectory.”

Brazil’s industrial production was unchanged in August after tumbling a revised 2.4 percent in July, the national statistics agency said today in Rio de Janeiro. That compares with the median estimate for a 0.2 percent rise from 34 economists surveyed by Bloomberg. Production fell 1.2 percent from a year earlier, a bigger drop than the 0.6 percent contraction predicted by economists, and down from a revised 1.7 percent jump in July.

The central bank has raised borrowing costs by 175 basis points since April to 9 percent for the biggest increase in the world.

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