Brazil Real Rises as Stimulus Prospects Buoy Emerging Markets

  • Commodities also advance amid bets on global monetary easing
  • Real gains despite $500 million intervention by central bank

Brazil’s real climbed to a one-week high as commodities and emerging-market assets rallied amid speculation that policy makers in major economies will work to stimulate growth.

The real gained 0.4 percent to 3.2956 per dollar on Tuesday. A Bloomberg index of raw materials rose 1.6 percent, while a gauge of emerging-market currencies advanced 0.3 percent.

The real is the world’s best performing currency this year, and extended gains Tuesday as traders cut wagers on U.S. rate increases while Japanese Prime Minister Shinzo Abe said he would order ministers to start considering fresh stimulus. Traders are also betting there will be further monetary easing in the euro area this year while the odds of a Bank of England rate cut Thursday are about 80 percent, trading in interest-rate derivatives show.

"The macro financial environment is definitely doing better, and emerging-market currencies such as the real are benefiting," said Sacha Tihanyi, a senior emerging-market strategist at TD Securities in New York. "The Brazilian central bank continuing to auction FX swaps will keep a bit of a lid on the real for now, however."

The real gained despite the central bank’s intervention to stem its advance. The monetary authority sold 10,000 reverse currency swaps, equivalent to buying $500 million in the futures market. Policy makers revived the intervention program in March and have since sold $46.3 billion of the contracts.

Brazilian assets have soared this year on prospects that a new government may be able to restore confidence and curb a record budget deficit.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest rates, rose 0.01 percentage point to 12.70 percent.

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