Photographer: Dado Galdieri/Bloomberg

Brazil Real Rises as China Intervention Bolsters Terms of Trade

Updated on
  • Finance Minister Barbosa reaffirms commitment to fiscal target
  • China stepped up efforts to curb bearish bets on the yuan

The real gained as China stepped up efforts to buttress the yuan, improving the outlook for Brazilian exports, and after Brazil’s government reiterated its commitment to meeting the fiscal target.

China’s central bank said it will impose reserve-requirement ratios on yuan deposited onshore by overseas financial institutions from Jan. 25, without saying what level would be used. The intervention helped stabilize the offshore yuan and mitigate concern that turmoil in the nation’s stocks and currency would spread. China is the biggest market for Brazilian exports, so a stronger yuan helps Brazil’s terms of trade.

"Sentiment surrounding China has improved in a day of reduced liquidity due to the holiday in the U.S.," said Joao Paulo de Gracia Correa, a foreign-exchange director at SLW Corretora de Valores in Curitiba, Brazil. "However, as we’ve seen in the past weeks, these gains tend to be short lived and we have to see what happens after China releases economic data tomorrow."

The real gained 0.4 percent to 4.0331 per dollar in Sao Paulo, reducing its decline over the past year to 35 percent. The currency has been punished by investors as the government struggles to shore up its budget. Finance Minister Nelson Barbosa said in an interview with O Globo over the weekend that he will take the necessary measures to meet the fiscal target this year. The government is working to win approval for a bill to revive a tax on financial transactions, known as the CPMF, before May, Barbosa said.

Swap rates on the contract maturing in January 2017, a gauge of expectations for changes in Brazil’s interest rates, rose 0.055 percentage point to 15.60 percent.