Brazil’s Real Declines as Nation’s Budget Outlook Offsets Fed

Brazil’s real declined for the second day as concern that President Dilma Rousseff will struggle to trim deficits offset speculation that the Federal Reserve isn’t in a rush to raise interest rates.

The currency fell 0.1 percent to 3.1298 per dollar at the close of trade in Sao Paulo after earlier climbing 0.5 percent. One-month implied volatility on options for the real, reflecting projected shifts in the exchange rate, was the highest among 16 major currencies.

Some developing-nation currencies rose on speculation that the Fed will signal in its minutes Wednesday that borrowing costs will stay low longer than expected, supporting higher-yielding assets. In Brazil, Rousseff was due to meet lawmakers this afternoon to discuss Brazil’s budget, Folha de S. Paulo reported.

“While the external scenario is supportive for emerging-market currencies, local political factors are in the spotlight,” Joao Medeiros, director at currency brokerage Pioneer Corretora de Cambio in Sao Paulo, said in a telephone interview. “If Rousseff gains support in Congress, the currency could gain further from the current level.”

Record budget deficits, stalled growth and allegations of corruption at the state-controlled oil company helped the real end the first quarter down 17 percent, the worst performance among 31 major currencies tracked by Bloomberg.

Rousseff said in an interview last week that she will do what it takes to meet budget targets. Standard & Poor’s maintained Brazil’s rating in March at one step above junk with a stable outlook, citing a “marked adjustment in various policies” to restore credibility.

Swap rates, a gauge of expectations for Brazil’s borrowing costs, declined 0.07 percentage point to 13.11 percent on the contract maturing in January 2017.

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