Brazil Real Weakens as Volatility Climbs to Highest Since April

  • Real declines as emerging-market currency rally flagged
  • Growing caution ahead of Fed meeting undermines earlier gains

Options to hedge against short-term swings in the Brazil real are the most expensive since April as investors awaited measures by a newly appointed central banker and a rally in emerging-market currencies falters.

One-week implied volatility on the real climbed to 21.2 percent, the second-highest among 31 major currencies tracked by Bloomberg. The real was down 0.6 percent to 3.4196 per dollar Friday, paring its gains this week to 3.2 percent. A gauge of 20 emerging-market currencies dropped for the second day. The Bloomberg dollar index gained 1.1 percent in two days.

The real declined along with peers as investors grew cautious before next week’s Federal Reserve meeting, undermining a rally spurred by expectations of delayed rate hikes. Brazil’s currency had advanced to the strongest level since July earlier this week as investors speculated that new central bank President Ilan Goldfajn will be less inclined than his predecessors to intervene in the foreign-exchange market.

"The tendency is for volatility to remain high," said Italo Abucater, the head of currency trading at ICAP Brasil Ctvm in Sao Paulo. "Brazil’s real is trading alongside global peers while the market has not yet been able to have a proper evaluation of the new central bank management. This is a moment of transition, and it’s hard to predict if it will be as interventionist as the previous administration."

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, rose 0.13 percentage point to 12.68 percent.

Before it's here, it's on the Bloomberg Terminal.