Brazilian Real Slumps as Industrial Output Unexpectedly Declines

  • January 2017 swap rates increase from five-month low
  • Economists had expected industrial output to remain unchanged

Brazil’s real weakened after a surprise drop in industrial production highlighted the effects of the country’s worst recession in more than a century.

The decline ended a three-day winning streak that brought the currency to the highest level this year. The real fell the most among major currencies in the past year as President Dilma Rousseff struggles to shore up the nation’s finances while trying to fend off impeachment. Brazil’s had its investment grade cut to junk by Standard & Poor’s and Fitch Ratings last year because of low growth, fiscal concerns and the political outlook.

“Dreadful numbers are becoming too common in Brazil," said Joao Paulo de Gracia Correa, a foreign-exchange director at SLW Corretora de Valores in Curitiba, Brazil. “In an environment of rapidly deteriorating domestic and external fundamentals, expectations for the Brazilian economy are being revised down sharply.”

The real dropped 0.7 percent to 3.9902 per dollar Tuesday in Sao Paulo. It is forecast to decline 4.8 percent more by the end of June, according to estimates compiled by Bloomberg.

Industrial output declined 0.7 percent in December from a month earlier, more than all 39 forecasts of economists surveyed by Bloomberg. The median estimate was that it would remain unchanged.

Rousseff attended Congress’s first session of the year on Tuesday to defend fiscal adjustments, reforms in the social security system, and taxes on banking transactions.

Swap rates on contracts due January 2017 rose 0.05 percentage point to 14.45 percent after closing at a five-month low on Monday.

Before it's here, it's on the Bloomberg Terminal.