Brazilian Real Declines as Global Commodities Slump Deepens

  • Industrial metals and oil led losses among raw materials
  • Swap rates fall before Brazil policy meeting this week

Brazil’s real declined, ending its longest winning streak since April, as a slump in raw-material prices spurred a slide in currencies of commodity-producing nations.

Industrial metals and oil led losses as the dollar extended gains against major currencies. Agricultural commodities may face a new headwind after Sunday’s election of Mauricio Macri as Argentina’s president, which may unleash an estimated $8 billion in shipments of stored crops.

The real dropped 0.7 percent to 3.7323 per dollar on Monday. Emerging-market currencies declined 0.6 percent. Brazil is one of the world’s largest exporters of iron ore and soybeans.

"The renewed slump in commodity markets is a major concern today," Ipek Ozkardeskaya, an analyst at London Capital Group in London. "Combined with the stronger U.S. dollar, the commodity currencies are under renewed selling pressure," she said.

The real is still up 3.3 percent this month, the best performer among 31 major currencies, helped in part by the high cost to bet against the real. With the Brazilian benchmark rate at 14.25 percent, betting against the real costs about 1.2 percent a month.

Investors expect Brazil’s central bank to leave the benchmark Selic rate unchanged at 14.25 percent when they meet this week, in line with analysts surveyed by Bloomberg.

The government is still working to approve a bill on repatriation of funds in the Senate this year, newspaper O Estado de S. Paulo reported. Lawmakers in the lower house approved the legislation, which provides incentives for Brazilians to bring money back into the country, on Nov. 12. The measure is part of Finance Minister Joaquim Levy’s program to narrow the budget deficit.

President Dilma Rousseff also faces other legislative challenges, such as winning approval for a bill to revive a tax on financial transactions, known in Brazil as the CPMF. Public-opinion polls show the majority of Brazilians oppose the levy, as do leading political parties. Rousseff said over the weekend that the CPMF tax is the only plan to balance accounts, according to a report in Folha de S. Paulo.

"While the commodities slump weighs on the real, there are also great expectations regarding important decisions such as the fiscal target for next year and the interest rates," Leonardo Monoli, a partner at Jive Asset Gestao de Recursos, said from Sao Paulo. "Markets are also closely watching the government’s negotiations for the return of the CPMF tax."

The Brazilian government, as well as leaders in the lower house and the Senate, plan to seek support among lawmakers to guarantee the approval of a change this year to the fiscal target and next year’s budget guidelines in Congress Tuesday, a lawmaker said.

Meanwhile, pressure on Eduardo Cunha to step down as the lower house president increased, even from members of his own party, according to a report by Folha. Cunha told reporters in Brasilia last week that he hasn’t decided on whether to go forward with an impeachment petition filed last month by a group of high-profile lawyers including Helio Bicudo, a prominent former member of Rousseff’s Workers’ Party.

Swap rates on the contract maturing in January 2017, a measure of expectations for interest-rate moves, fell 0.14 percentage point to 15.07 percent, a two-month low. The central bank last month left the benchmark Selic rate unchanged at 14.25 percent.

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