Brazilian Real Advances as Ouster Wagers Outweigh Swap Auction

  • Central Bank sells 20,000 reverse swap contracts on Wednesday
  • Currency still the best performer among peers this year

Brazil’s real gained as speculation President Dilma Rousseff will be impeached overshadowed the central bank’s efforts to weaken the currency. 

The real advanced 0.1 percent to 3.5325 per dollar on Wednesday, after declining as much as 1 percent earlier. Brazil’s currency remains the most volatile among 16 major currencies tracked by Bloomberg, as traders bid up its value on speculation that a new government is on its way while the central bank fights appreciation by selling reverse-swap contracts.

The central bank sold $1 billion of reverse swaps on Wednesday, after letting the real advance the most in a week on Tuesday as it refrained from offering new contracts in the session. Policy makers re-introduced the sale of such contracts last month to prevent the real’s appreciation from curtailing Brazilian exports, as the currency posted the best gains among major peers this year.

"The market will keep testing the central bank and see how far it intends to go with the reverse swaps," said Reginaldo Galhardo, a foreign exchange manager at Treviso Corretora de Cambio in Sao Paulo. "At the same time, there is expectation that a team with strong name could bring confidence back, and that is supportive for the real."

After resuming the auctions of reverse swap contracts last month, the total outstanding volume of contracts to support the real dropped to the lowest level since 2013.

The reversal in the central bank’s policy came as Brazil’s real advanced 12 percent this year on speculation that an impeachment Rousseff could pave the way for measures to revive Latin America’s largest economy and tackle a record budget deficit.

Brazil posted a current account deficit of $855 million in March, below the $1.2 billion deficit forecast by 23 economists surveyed by Bloomberg. The deficit this year through March was of $7.6 billion, versus a $25.1 billion deficit the same period last year.

The country posted a foreign exchange inflow of $2.1 billion in the week through April 15, compared with a $1.5 million inflow the previous week, according to data from the central bank released Wednesday. The outflow so far this year has been $6.4 billion, compared with an inflow of $7.9 billion in the same period last year.

Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, fell 0.025 percentage point to 13.495 percent.

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