Brazilian Real Declines Ahead of Central Bank Currency Fixing

  • Banks may have wagered that real would be weaker at this point
  • Emerging-market currencies weaken ahead of Yellen speech

The Slow Unraveling of Brazil, Explained in Two Minutes

Brazil’s real fell amid speculation banks were seeking to weaken it before the central bank determines a key rate used in settling some financial contracts.

The currency lost 0.4 percent to 3.2478 per dollar at 1:52 p.m. in Sao Paulo, on course to end the month 0.6 percent weaker.

The central bank currency rate, known as Ptax, is calculated every business day based on data collected from banks, but the last day of the quarter becomes a reference for the settlement of many derivative contracts in the local market. Some banks may have bet the real would be trading at a weaker level as the end of the quarter approaches, so it’s in their interest to try to push down the local currency, according Italo Abucater, the head of foreign-exchange trading at Icap Brasil.

"Traders are fighting to control the Ptax, rolling their positions," Abucater said.

The real also fell in line with emerging-market currencies as the dollar strengthened 0.2 percent against its peers. Federal Reserve Chair Janet Yellen will address lawmakers Wednesday and the lineup of Fed officials due to make speeches includes Loretta Mester and Esther George, both of whom voted in favor of an interest-rate increase at last week’s policy review. The U.S. central bank held borrowing costs steady Sept. 21 and futures prices reflect roughly 50-50 odds of a hike by December, down from 61 percent a week ago. An index of emerging-market currencies fell 0.3 percent.

Swap rates on the contract maturing in January 2018, a gauge of expectations for Brazil’s interest-rate moves, were unchanged at 12.15 percent, after declining to 12.12 percent, the lowest since January 2015. Swaps traders have slashed estimates on borrowing costs after the central bank said it sees inflation slowing below the target next year.

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