Brazil Real Posts Worst Week Since December Amid Political Woes

  • Petrobras and Itau lead losses in Ibovespa stock gauge
  • Recordings suggest that PMDB members looked to impede Carwash

Latin American Currencies Down, Crude Up, What's Next?

Brazil’s real extended its worst week since December and stocks fell as speculation the country’s political crisis will escalate dimmed expectations that Acting President Michel Temer will be able to restore confidence in Latin America’s biggest economy.

The real led losses among the world’s major currencies this week after recordings released by newspapers suggested that Temer’s PMDB party sought to impede the sweeping corruption investigation known as Carwash that started at the state-run oil producer Petroleo Brasileiro SA and undermined support for suspended President Dilma Rousseff. A weaker government makes it more difficult for the government to gain Congressional support for measures needed to stabilize the economy.

“The political scenario still demands caution," Camila Abdelmalack and Jessica Strasburg, analysts at CM Capital Markets in Sao Paulo, wrote in a note to clients. The recordings and events from this week "could become a problem in the upcoming voting that’s in the government’s interest and in the final discussion of the impeachment."

Traders have piled into Brazilian assets this year on speculation that a change in the administration would be able to revive an economy facing its worst recession in a century and shore up the budget. Improving fiscal accounts is key for the government after the country lost its investment-grade credit rating last year.

The currency fell 0.8 percent to 3.6115 per U.S. dollar on Friday, extending this week’s slide to 2.4 percent. The Ibovespa lost 0.9 percent to 49,051.49, led by Petrobras.  Lender Itau Unibanco Holding SA dropped for a third day.

Fibria SA, which get most of its sales from abroad, posted a second consecutive weekly gain as the real depreciated.

"Exporters are benefiting from the real’s drop, but caution is key,” said Raphael Figueredo, an analyst at brokerage Clear Corretora in Sao Paulo.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.06 percentage point to 12.99 percent.

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