Brazil Real Leads Latin America Rally While Swap Rates Tumble

  • Real is best performer from developing nations this month
  • Consumer inflation slowed more than expected in February

Brazil’s real advanced to the strongest level in six months and led gains in Latin America as prices for its commodity exports rose while a report showing slower-than-forecast inflation last month sent swap rates to a six-month low.

The real gained 1.8 percent to 3.6898 per dollar Wednesday in Sao Paulo, the highest level since Aug. 31. Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, declined 0.16 percentage point to 13.89 percent, the lowest level since Aug. 27.

Brazil’s currency has surged this month as prices for iron ore and oil jumped and speculation grew that a corruption scandal will lead to the downfall of President Dilma Rousseff, who already faces an effort to impeach her for allegedly misreporting government finances. The leader of the largest party in Brazil’s lower house of Congress said Rousseff might not finish her term and that protests scheduled for this weekend over the so-called Carwash corruption scandal will be decisive for her future, newspaper Valor Economico reported Wednesday.

"There is a myriad of factors boosting the real, such as new developments in the Carwash investigation, growing impeachment possibility, new protests against Rousseff arising and also improvements in oil and iron ore," said Eduardo Longo, who helps manage 23 billion reais ($6.2 billion) as a fixed-income portfolio manager at Quantitas, in Porto Alegre, Brazil.

A gauge of raw materials rebounded from its biggest selloff in a month, climbing 1.3 percent.

While traders in the past have been split about whether an impeachment would be good or bad for markets, many now say it may be the only way out of a political quagmire. Rousseff and her Workers’ Party have repeatedly denied wrongdoing.

Opposition parties obstructed voting in Congress on Tuesday as they step up pressure on lawmakers to resume impeachment proceedings against Rousseff. The political squabbling underscores the challenges she faces in winning approval of a legislative agenda that is designed to narrow a record budget gap, slow inflation and revive investor confidence.

The benchmark IPCA consumer price index rose 0.9 percent in February from the previous month, less than the 0.98 percent median forecast by economists and the 1.27 percent increase in January. Twelve-month inflation slowed for the first time since September, to 10.36 percent.

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