Brazil Real Drops on China Trade Data as Political Tension Rises

  • Rousseff is seen losing Vice President Temer's support
  • Real is worst performer among major currencies in 2015

Brazil’s real declined the most in a week after economic data from China, the country’s biggest trading partner, sparked a slump in currencies of commodity-producing nations.

The real lost 1.1 percent to 3.8107 per dollar as of 4:12 p.m. in Sao Paulo, after rising as much as 0.6 percent earlier. A gauge of 20 developing-nation currencies declined for the third straight day, sinking to a record low. China’s imports slumped for a record 13th straight month, albeit at a slower-than-estimated pace. The drop is a drag on other economies as the Asian nation’s flagging industrial plants need less raw materials. 

In Brazil, where President Dilma Rousseff is fighting an effort to impeach her, a letter from Vice President Michel Temer spurred speculation there’s a growing rift between the two, which could make her removal from office easier. While investors in the past have been split about whether impeachment would be positive for Brazil, many now say it may be the only way to resolve a months-long political stalemate.

"The currency is on track now with its global peers, the external scenario is bleak," said Guilherme Esquelbek, a currency trader in Curitiba, Brazil. "Meanwhile, Temer’s letter shows clearly that there is a division within the government and that Temer is supportive of the impeachment process. For markets, the faster the impeachment process, the faster we get over this problem.”

Temer, in a personal letter to the president on Monday that was published by all major newspapers, outlined key points of tension between him and Rousseff, sparking bets his PMDB party may withdraw its support of the president. It would be a major blow for Rousseff, who said as recently as Monday she was counting on Temer’s support to resist impeachment.

In the letter, Temer said Rousseff never trusted him and gave several examples of how she had ignored him for the past five years. The letter was leaked to the Brazilian press late Monday. His office said on Twitter that the letter was “private” and addressed to Rousseff only.

“I have always been aware of your complete lack of trust in myself and the PMDB,” Temer said, referring to the coalition party he presides and that will be key to determine whether the president will have enough votes to avoid an impeachment. “I should have vented this a long time ago.”

Moody’s Investors Service and Fitch Ratings have said that the process to oust Rousseff may add to the turmoil in the country, further hurting Latin America’s largest economy.

Brazilian analysts expect the economy to contract 3.5 percent this year and 2.31 percent in 2016, compared with a previous predictions of a 3.19 percent and 2.04 percent drop, a central bank survey released Monday shows.

The country’s currency was the worst performer among 16 major peers tracked by Bloomberg this year, with a 30 percent loss.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, rose 0.04 percentage point to 15.78 percent.

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