Brazil Real Rises as China Moves Reassure Markets After Rout

  • Real still on course for weekly decline as recession deepens
  • Swap rates fall after slower-than-forecast December inflation

The real rose for the first time in three days amid improved appetite for emerging-market assets as China moved to reassure investors after a rout earlier this week.

Chinese authorities suspended a circuit-breaker system, set a higher yuan reference rate and state-controlled funds were said to buy equities. Volatility in Chinese markets this week spurred a global selloff as concern deepened over the ruling Communist Party’s ability to manage a slowdown in the world’s second-largest economy. China is the biggest buyer of the commodities many developing nations rely on to fuel growth, and Brazil is its second-largest supplier of goods from developing nations.

"The risk appetite is better globally after the Shanghai’s Composite passed the test of a no circuit-break day," said Ipek Ozkardeskaya, an analyst at London Capital Group.

The real gained 0.5 percent to 4.0248 per dollar in Sao Paulo.

The Brazilian currency is still down 1.6 percent in the first week of the year as pessimism surrounding China added to bearish views on the domestic economy. Credit-rating downgrades, forecasts for the worst economic contraction in a century and a deteriorating fiscal outlook helped push the real down 33 percent last year, the most among the world’s 16 most-traded currencies. Efforts to bolster growth and shore up government finances have been hindered by political gridlock amid efforts by some lawmakers to impeach President Dilma Rousseff.

"Idiosyncratic risks will continue to dent appetite for the real and will certainly keep the market volatile regardless of any improvement in global risk sentiment," Ozkardeskaya said. "Investing in the real requires strong nerves."

Brazil’s consumer prices rose less than forecast by all analysts in December, which wasn’t enough to prevent the central bank from missing its annual inflation target last year for the first time in more than a decade. Annual inflation accelerated to 10.67 percent, the fastest for a full year since 2002 and more than double the midpoint of the 2.5 percent-to-6.5 percent target range.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s interest rates, declined 0.01 percentage point to 15.53 percent. They dropped 0.34 percentage point on the week.

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