Brazil Real Falls Second Day as Emerging-Market Currencies Drop

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  • Real posting its longest losing streak in three weeks
  • Implied volatility increases on political uncertainty

The real dropped for a second day, its first back-to-back loss in three weeks, as emerging-market currencies fell worldwide on renewed concern that global economic growth is faltering.

The real weakened 1.5 percent to 3.6796 per dollar. One-month implied volatility for the currency, a measure of anticipated swings, rose 1.45 percentage points to a five-month high of 27 percent.

Worse-than-expected economic data in the U.S. and Germany are making investors more cautious this week, and prices for the commodity exports that Brazil depends on have fallen for six consecutive days. Investors are also focused on the political turmoil surrounding efforts to impeach President Dilma Rousseff, which some analysts say is the best chance to install a new government that would pull the country out of its deepest recession in a century.

"There is all this negative news weighing on sentiment, with stocks and a large part of commodities down," said Georgette Boele, an Amsterdam-based currency and precious-metals analyst at ABN Amro Bank NV.

The real’s 7.7 percent gain this year is the second biggest among 16 major currencies worldwide, bolstered by speculation that Rousseff will lose her battle to stay in office. The currency plunged 33 percent in 2015 amid worsening economic forecasts and a growing fiscal deficit that cost the country its investment-grade credit rating.

The cost of insuring Brazilian bonds in the credit-default swaps market for five years rose 12 basis points on Monday, the biggest increase on a closing basis since since March 23.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, fell 0.05 percentage point to 13.80 percent.