Brazil’s Real Gains on Commodity Rally as Ibovespa Declines

  • Country’s currency rises for the fifth time in six sessions
  • Steelmaker Gerdau and iron-ore producer Vale advance

Brazil’s real posted its longest winning streak in five weeks, swept up in a rally for emerging-market currencies that overshadowed domestic political turmoil. The Ibovespa dropped.

The real advanced 1.1 percent to 3.4894 per dollar Monday in Sao Paulo, rising for the fourth consecutive day. The Ibovespa slipped 0.4 percent after swinging between gains and losses earlier in the day. Mining company Vale SA climbed with commodities, while Kroton Educacional SA fell. The Bloomberg Commodity Index entered a bull market after advancing 1.1 percent, bolstering the outlook for inflows from Brazil’s raw-material exports, and a gauge of 20 emerging-market currencies tracked by Bloomberg climbed.

The real is posting the second-best performance among developing nations this month as traders push back wagers on when the U.S. will raise interest rates and as oil prices held near $50 a barrel. Those factors overcame concern about the new administration of Acting President Michel Temer after Tourism Minister Henrique Eduardo Alves was cited in a corruption investigation at Brazil’s Supreme Court, according to a report published by Folha de S.Paulo newspaper. He denied any wrongdoing.

"Commodities are doing well and are supporting related currencies," said Georgette Boele, a currency and precious metals strategist at ABN Amro Group NV in Amsterdam. "But when overall sentiment on emerging markets deteriorates, all the negative domestic developments will put the real under pressure."

In Brazil, the fresh political concerns come one week after after Fabiano Silveira, the minister of transparency and control, resigned following the release of a recording in which he allegedly criticized the so-called Carwash corruption probe while offering advice to a politician under investigation. The graft investigation has implicated members of the political and business elite in a vast scheme of kickbacks and money-laundering.

Brazilian assets are among the world’s best performers this year on speculation the new administration would able to curtail a growing budget deficit and help pull the country out of its worst recession in a century. To do that, Temer needs to find support in Brazil’s fractured Congress for measures to reduce spending and raise revenue.

Brazil economists raised their gross domestic product growth forecast for next year to 0.85 percent from 0.55 percent, according to a survey published on the central bank’s website on Monday. They expect the country’s economy to shrink 3.71 percent this year, compared with a 3.81 percent forecast forecast last week.

"The improvement in expectations is the first step for the economy to recover, so it’s positive for companies,” said Jason Vieira, the chief economist at Infinity Asset Management in Sao Paulo. “But there’s still a lot to be done.”

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, declined 0.03 percentage point to 12.51 percent.

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