Brazil’s Real Advances as Rollover Offsets Drop in Commodities

Brazil’s real advanced after swinging between gains and losses as a rollover of foreign-exchange swaps supporting the currency offset a drop in commodities.

The real rose 0.2 percent to 2.5607 per dollar at the close of trade in Sao Paulo after falling 0.6 percent earlier today. Swap rates, a gauge of expectations for changes in borrowing costs, climbed 0.14 percentage point to 12.32 percent on the contract maturing in January 2017.

The central bank extended the maturity on 10,000 currency swap contracts today after refraining from calling a rollover at the beginning of November. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, remained the highest among 31 major currencies tracked by Bloomberg after the Russian ruble.

“The fact that the central bank announced the rollover earlier this month is exerting upward pressure on the real,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said by telephone. “Falling oil prices are driving commodity-exporting countries’ currencies down.”

The Bloomberg Commodity Index of 22 raw materials dropped as much as 1.7 percent to the lowest level since May 2009 before increasing. West Texas Intermediate crude climbed after falling today to below $65 a barrel. Copper, corn and wheat declined.

To support the currency, Brazil sold the equivalent of $198.1 million of foreign-exchange swaps today as part of an intervention program begun last year, and it rolled over contracts worth $489.5 million.

Brazilian President Dilma Rousseff pledged last week to undertake an “immense effort” to slow inflation as she retools her economic team following the Oct. 26 election.

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“The most recent data shows inflation will finish the year within the target,” Rousseff told leaders of her Workers Party on Nov. 28. “This doesn’t mean we’re content with inflation at the upper limit of the target range. On the contrary, we’re going to do an immense effort to reduce inflation.”

Consumer prices rose 6.42 percent in the 12 months through mid-November, compared with the central bank’s preferred range of 4.5 percent plus or minus 2 percentage points.

Rousseff spoke a day after naming Banco Bradesco SA executive Joaquim Levy to be her next finance minister, replacing Guido Mantega.

Policy makers lifted the target lending rate on Oct. 29 by a quarter-percentage point to 11.25 percent, saying the first increase since April was carried out to ensure a “benign outlook” for inflation.

Economists surveyed by Bloomberg and traders of interest rate futures are projecting an increase of a half-percentage point at the Dec. 3 meeting.

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