Brazil Real Leads Global Losses as Greece Sinks Demand for Risk

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The real led global declines as Greece’s economic crisis damped the allure of higher-yielding assets and contributed to a drop in prices for Brazil’s commodity exports.

“As concern regarding a Greek exit from the euro prevails, investors are seeking lower-risk assets, avoiding emerging-market currencies including the real,” Joao Paulo de Gracia Correa, a foreign-exchange manager at SLW Corretora de Valores, said in a telephone interview from Sao Paulo.

Carry trades in which investors bought the real with borrowed dollars have lost 11 percent this year, the most among emerging-market currencies. Brazil’s Treasury will probably delay international bond sales until the end of the third quarter because the Greek crisis is destabilizing financial markets, according to a government official familiar with the strategy, who asked not to be identified because talks aren’t public.

The currency dropped for a third straight day, slumping 1.5 percent to 3.1862 per dollar at the close of trade in Sao Paulo, the weakest level on a closing basis since March 31. The drop was the biggest among 31 major tenders tracked by Bloomberg.

Oil sank to a three-month low on concern over economic stability in Europe and China, and iron-ore prices fell below $50 a ton. Commodities accounted for 46 percent of Brazil exports at the end of May.

“The fall in commodity prices weighs on commodity exporters’ currencies such as the real, especially given that volatilities in the Chinese market persist,” Ipek Ozkardeskaya, an analyst at London Capital Group, said in an e-mailed response to questions.

Fiscal Adjustments

The real dropped 1.4 percent in the past month as lawmakers pushed back against President Dilma Rousseff’s effort to narrow the budget deficit and preserve the nation’s credit rating. She said in an interview with Folha de S.Paulo that the administration is planning new fiscal adjustments after Congress changed legislation.

Swap rates, a gauge of expectations for changes in Brazil’s borrowing costs, fell 0.03 percentage point to 13.72 percent Tuesday on the contract maturing in January 2017.

The central bank extended the maturity on 6,000 currency swap contracts. Last week, it lowered the total amount offered in a rollover from 7,100.

The Finance Ministry’s press office didn’t immediately respond to telephone and e-mail requests for comment from Bloomberg on global bond sales.