Brazil Real Declines Amid Intervention as Emerging Markets Slump

  • Central bank announces sale of 20,000 reverse currency swaps
  • Industrial production tumbles 11% in March from year earlier

Brazil’s real declined a second day as the central bank intervened to weaken it, joining a selloff in emerging-market currencies as renewed concern that China’s economy is faltering dimmed demand for riskier assets.

The real slumped 1.6 percent to 3.5586 per dollar on Tuesday after the monetary authority sold 9,800 reverse swaps, a move that’s equivalent to buying $490 million in the futures market. The central bank had offered to roll 20,000 reverse swap contracts in the auction. The S&P GSCI Commodity index dropped 1.9 percent after losing 1.5 percent on Monday, dimming the outlook for inflows into Brazil from exports soy, iron-ore and oil.

Brazil’s currency posted the third-worst decline among 24 emerging-market currencies tracked by Bloomberg, trailing Mexico’s peso, Australia’s dollar and South Africa’s rand, after a report showed Chinese manufacturing slipped in April, underscoring pockets of weakness in the economy. China is Brazil’s biggest export market and slowing demand has contributed to forecasts calling for Brazil’s worst recession in more than a century. Underscoring the slump, Brazil’s industrial output fell 11 percent in March from a year earlier.

"There is a broad move counter to emerging markets that has been in effect today," said Sacha Tihanyi, a senior emerging-market strategist at TD Securities in New York. “Meanwhile, the central bank reverse swap action definitely has a significant impact and the Brazilian industrial production number doesn’t help the real.”

It’s been more than two full years since Brazil recorded year-on-year growth in factory output.

Swap rates on the contract maturing in January 2017, a gauge of expectations on interest-rate moves, dropped 0.005 percent to 13.655 percent.

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