Brazil Real Rises as Investors See Increasing Impeachment Odds

  • PMDB party said to break with government in March, Folha says
  • The real has climbed more than any major currrency this year

Brazil’s real advanced amid increasing speculation that an impeachment of President Dilma Rousseff is closer, offsetting and intervention by the central bank that signaled it may be seeking to put a damper on the currency’s recent rally.

The real added 1.1 percent to 3.5802 per dollar Tuesday, reaching the strongest in almost seven months, after dropping as much as 0.9 percent earlier. The currency has surged 11 percent this year, the most among its most-traded counterparts.

Traders pushed up the value of the Brazilian currency on speculation that the PMDB party, which is part of the government coalition but has wavered in its support over the past year, will cut ties March 29, as reported by Folha de S. Paulo newspaper. In the midst of rising impeachment risk, Rousseff is already preparing to appeal to the Supreme Court to stop her ouster, claiming the impeachment request has no legal basis, Folha wrote. Some investors and traders bet that a new government is Brazil’s best hope for emerging from its recession and shoring up its fiscal accounts.

"The impeachment still is the main focus for investors, and there is room for the real to strengthen further," said Cleber Alessie, a currency trader at H.Commcor DTVM in Sao Paulo. "It seems like the government is running out of cards it can put at the table to avoid it."

An opinion survey published by the Datafolha polling firm on Saturday showed that support for impeaching Rousseff rose to 68 percent, up from 60 percent in February. The Brazilian bar association, which was influential in the country’s return to democracy in 1985 and the impeachment of President Fernando Collor in 1992, on Friday voted to back a proposal by lawmakers to remove Rousseff from office.

Brazil’s central bank placed 10,000 foreign-exchange reverse swap contracts Tuesday, equivalent to buying dollars in the futures market, out of the 14,500 contracts it had offered. The move reverses a previous policy of using the swaps to help bolster the real.

The central bank changed tactics after the real climbed 9.4 percent against the dollar this year through Friday, more than any other major currency in the world, as the drive to impeach Rousseff gained momentum.

Alexandre Tombini, the central bank head, told Brazil’s senate on Tuesday that the country’s international reserves, which were at $374 billion as of March 18, give security to the local economy and have to be preserved at the level they are. Some local newspapers reported last week that the government may tap reserves to boost growth.

"The impeachment process seems to be gathering pace and overall investors like this," said Georgette Boele, an ABN Amro Group NV strategist in Amsterdam.

Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazil’s interest rates, fell 0.07 percentage point to to 13.71 percent.

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