Brazilian Real Leads Losses Amid $24.7 Billion in Swap Auctions

  • Central bank sells 88,500 reverse swap contracts on Friday
  • Currency falls even after top court approved ouster voting

Brazil’s real led losses among its world’s major peers amid the central bank’s attempts to weaken the currency to prevent exports from slumping.

The real dropped 1.5 percent to 3.5369 per dollar at 12:39 p.m. in Sao Paulo, after the monetary authority sold 88,500 reverse swaps out of 120,000 it offered on Friday, a move that’s equivalent to buying $4,425 billion in the futures market. The total amount of reverse swap contracts sold this week was of $24.7 billion. 

Brazilian assets have soared this year on prospects that a new government will be able to restore growth and curb a record budget deficit, with the currency, stocks and corporate bonds all among the world’s best performers. Beginning last month, policy makers started selling contracts to weaken the currency in a bid to keep it from appreciating so much that it impairs the competitiveness of Brazil’s exports. The real slumped Friday even after Brazil’s Supreme Court allowed voting on impeachment to continue as scheduled on Sunday, delivering a blow to President Dilma Rousseff.

“The central bank acted in a flawless manner this week, working to reduce volatility and holding the currency at a reasonably good level for external accounts,” said Italo Abucater, the head of currency trading at ICAP Brasil Ctvm in Sao Paulo. “Still, today is the last day of trading before the vote Sunday, so politics should drive the trade.”

Newspaper O Estado de S.Paulo reported that lawmakers favoring the president’s impeachment in the lower house reached 343 votes, one more than the number necessary to send the process to Senate.

One-month implied volatility fell for a fourth session to 25.29 percent, still the highest among 24 emerging-market currencies tracked by Bloomberg. The cost of insuring Brazilian bonds in the credit-default swaps market for five years rose for the first time in six sessions, reaching 340.8 basis points. Swap rates on the contract maturing in January 2017, a gauge of expectations for interest rates, dropped 0.55 percentage point to 13.59 percent, extending this week’s decline to 0.205 percentage point.

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