Brazil Real Rises to 11-Month High as New Central Banker Cheered

  • Ilan Goldfajn confirmed as new central bank head by Congress
  • Country’s currency advanced for the sixth straight session

Brazil’s currency posted its longest winning streak in more than two years as investors cheered comments from the incoming central bank head that signaled he’ll be less interventionist than his predecessor.

The currency advanced 2.4 percent to 3.3622 per U.S. dollar on Wednesday, the highest level since July. Most emerging-market currencies advanced after better-than-estimated trade data from China, Brazil’s biggest trading partner.

The real rallied as Ilan Goldfajn, the former chief economist at Itau Unibanco Holding SA, said during his Senate confirmation hearing Tuesday that he’s committed to a floating exchange rate and that monetary policy -- not the exchange rate -- should be used to fight above-target inflation. Investors, who had questioned the autonomy of the monetary authority under Alexandre Tombini, took the comments as a sign that policy makers will scale back the sale of reverse swap contracts, which tend to weaken the currency.  

"Goldfajn sent the message to the market that he does not intend to intervene as much as Tombini did," said Jefferson Rugik, a currency trader at brokerage Correparti Corretora de Cambio in Curitiba, Brazil. “That is seen as positive by the market and supportive for the real.”

Goldfajn, an economist who holds a doctorate from the Massachusetts Institute of Technology and served as the central bank’s economic policy director from 2000 to 2003, will replace Alexandre Tombini as the president of the Central Bank after the Senate approved his appointment on Tuesday. Senators voted 56 to 13 in favor of him as new central bank president, what was seen by investors as a strong signal that he has political support in the position. He is seen as one of the strongest members of the new economic team appointed by Acting President Michel Temer.

Investors questioned the autonomy of the central bank during Tombini’s tenure, citing his decision to cut borrowing costs to a record low in 2012 even as inflation remained high. Goldfajn said during the hearing that monetary policy, not the currency, should be used to fight above-target inflation.

The central bank has refrained in recent weeks from intervening in the foreign exchange market through the sale of reverse swaps, the equivalent to buying dollars in the futures market. In March, the central bank resumed auctions of reverse-currency swaps as the real headed for the biggest first-quarter gain among about 150 currencies tracked globally by Bloomberg. The last time policy makers held a reverse-swap auction was on May 18.

While the real tumbled last month on concern that the new administration may struggle to revive growth, it’s still the best-performing major currency this year on speculation the new administration will be able to bolster the economy and shore up the budget.

The currency also gained along with other emerging-market assets on Wednesday as better-than-estimated Chinese trade data bolstered confidence in the world’s second-biggest economy and crude oil traded above $50 a barrel. A gauge of 20 developing countries currencies tracked by Bloomberg advanced for the sixth straight day.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, declined 0.08 percentage point top 12.48 percent.

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