Brazilian Currency Climbs to Seven-Week High on Fed Rate Outlook

Brazil’s real rose to a seven-week high as speculation the Federal Reserve isn’t in a hurry to raise U.S. borrowing costs supported emerging-market assets.

The real climbed for a third straight day, advancing 1.4 percent to 2.9707 per dollar at the end of trade in Sao Paulo, the first close stronger than 3 per dollar since March 4. The currency fell earlier on concern the scandal embroiling the national oil company remained an impediment to President Dilma Rousseff after it published its first audited results since August.

Most developing-nation currencies including the real rallied after a U.S. report showed that purchases of new homes slumped more than forecast in March, adding to wagers that the Fed will keep interest rates low. The swings in the real made it the most volatile among 16 major dollar counterparts tracked by Bloomberg.

“The real shifted after weaker economic data in the U.S., which made the dollar lose across the board,” Joao Paulo de Gracia Correa, a currency trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview.

Allegations of kickbacks, bribes and inflated construction contracts at Petroleo Brasileiro SA helped to push the real down 11 percent this year on concern the scandal makes it harder for Rousseff, a former chairman of the oil company, to attract political support for measures shoring up budgets and reviving the economy.

Budget Dispute

Brazil’s Finance Ministry proposes freezing 77 billion reais ($26 billion) in this year’s budget, more than the president’s office and the Planning Ministry are willing to back, a government official with knowledge of the discussions said.

Disagreement within the administration is delaying its announcement of the freeze, said the official, who asked not to be identified because the discussions aren’t public. The government will publish the size of the budget freeze within 30 days, the Planning Ministry wrote in a statement.

Petrobras reported Wednesday after the close of markets a writedown of 50.8 billion reais ($16.9 billion), including a corruption cost of 6.2 billion reais and an impairment of 44.6 billion reais, mainly from overpriced and unfinished refinery projects. The investigation of graft has cast a shadow over the nation’s bond market, with no Brazilian companies selling debt overseas since Nov. 14.

“People need to see clear signals of what the company intends to do going forward,” Sidnei Nehme, executive director at NGO Corretora in Sao Paulo, said in a telephone interview.

Moody’s Stance

While Moody’s Investors Service lowered Petrobras’s credit rating to junk in February, it said April 21 that publication of results before the April deadline is positive for Brazil.

Swap rates on the contract maturing in January 2017, a gauge of projected changes in borrowing costs, increased 0.04 percentage point to 13.36 percent Thursday.

The central bank extended the maturity of currency swap contracts worth $517 million. The sale of the swaps, which supported the real and limited import price increases, was halted at the end of March.

In the U.S., sales of new homes dropped 11.4 percent to a four-month low 481,000 annualized pace, Commerce Department figures showed. The median estimate of 79 economists surveyed by Bloomberg called for a 515,000 rate.

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