Brazil Real Falls With Emerging Markets as Commodity Prices Sink

Updated on
  • Weeklong rally in emerging currencies, commodities falters
  • Real ends longest winning streak in more than two years

Brazil’s real weakened from the strongest level in 11 months as investors speculated that gains driven by dovish signals from the U.S. Federal Reserve were overdone.

The currency dropped 1.1 percent to 3.4002 per U.S. dollar on Thursday, ending the longest winning streak since March 2014. An index of 20 developing-nation currencies tracked by Bloomberg dropped for the first time in seven sessions as oil and metals fell. Brazil depends on commodity exports for dollar inflows.

The real weakened after data published Thursday showed that U.S. jobless claims unexpectedly fell and the number of people receiving benefits reached an almost 16-year-low. Emerging-market currencies had strengthened 3.3 percent in the week through Wednesday as dismal U.S. jobs data curbed bets for an interest-rate increase any time soon, while gains in oil and signs that China’s economy is on the mend underpinned demand for riskier assets. The rally ended on Thursday.

"After several days of gains, the real is falling along with emerging-market currencies as optimism abroad dissipates," said Joao Paulo de Gracia Correa, the head of foreign currency at brokerage SLW in Curitiba, Brazil. "Investors in the real will be looking for hints from the new central bank management regarding eventual interventions going forward."

Former Itau Unibanco SA economist Ilan Goldfajn, who starts as the top central banker on Thursday, said this week during a hearing in Congress that the currency should remain floating, which was seen by investors as a sign that he intends to curtail intervention. In March, the central bank resumed auctions of reverse-currency swaps, the equivalent to buying dollars in the futures market, as the real headed for the biggest first-quarter gain among about 150 currencies tracked globally by Bloomberg. 

The central bank has refrained from intervening in recent weeks. The last time policy makers held a reverse-swap auction was on May 18.

Policy makers kept borrowing costs unchanged Wednesday at a policy meeting, voting unanimously to leave the Selic rate at a near-decade high of 14.25 percent for a seventh straight meeting, as expected by all 41 analysts surveyed by Bloomberg.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.07 percentage point to 12.55 percent.