Brazil’s Real Trades Near One Month Low Amid Commodity Decline

  • Real outperforming regional peers in May on political optimism
  • Raw materials make up more than half of Brazil’s exports

Brazil’s real traded near the lowest level in a month as commodities declined, damping the outlook for the country’s raw-material exports.

The currency was little changed at 3.5645 per dollar on Thursday as metals and crude fell. The Bloomberg Commodity Index lost 0.8 percent, worsening the outlook for inflows to a country where raw materials make up more than half of exports. Ibovespa also retreated as producers account for 22 percent of the equity index’s weighting.

The real has lost 3.6 percent this month, caught up in an emerging-market selloff spurred by speculation that U.S. interest rates will rise. It fell the most in a month on Wednesday after Federal Reserve minutes showed most policy makers see an increase as appropriate in June. The currency is still the best performer in Latin America this year on speculation that a new government in Brasilia will help pull the country out of its deepest recession in a century.

"The Fed was successful in talking up the curve, forcing the market to price in a greater chance of rate hikes in June and of course this shortens the party for emerging-market currencies," said Mauricio Oreng, a senior strategist at Rabobank, which predicts the real will end the year little changed from current levels. "This naturally causes a correction in commodities, which weighs on the real too."

Brazilian equities and the real are among the world’s best performers this year as lawmakers suspended President Dilma Rousseff while she faces a trial in the Senate on allegations she doctored fiscal accounts. Michel Temer took over as acting president last week.

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