Brazil Real Gains as Oil Rebound Overshadows Chinese Slump Data

  • Chinese exports fell 10%, undermining hopes of a recovery
  • Oil prices rebounded as crude inventories declined in U.S. hub

Brazil’s real advanced as a rebound in oil prices overshadowed disappointing Chinese data and increased bets on a Federal Reserve interest-rate hike that bolstered the dollar.

The real gained 0.5 percent to 3.1787 per dollar Thursday in Sao Paulo after declining as much as 0.7 percent earlier. The Bloomberg Commodity Index gained 0.7 percent after sliding as much as 0.4 percent earlier. Raw-materials make up more than half of Brazil’s exports.

Oil prices in New York reversed earlier losses as declines in U.S. fuel stockpiles and crude inventories at the key U.S. supply hub offset the first nationwide oil inventory gain since August. Earlier today investors turned cautious on emerging markets after China’s exports fell 10 percent in September from a year earlier in dollar terms, while imports declined 1.9 percent. Data ended a run of positive numbers from Brazil’s biggest trading partner and undermined speculation that the weaker yuan would boost demand for Chinese products.

"The oil prices rebound has improved domestic sentiment," said Reginaldo Galhardo, a foreign-exchange manager at Treviso Corretora de Cambio in Sao Paulo. Crude oil for November was up 0.7 percent in New York trading.

Fed minutes released Wednesday confirmed officials are moving toward tightening. The Fed funds futures market is signaling a 66 percent probability the monetary authority will raise rates in December, compared with a 59 percent likelihood seen at the end of last month. Brazil’s local benchmark rate -- at 14.25 percent -- is the highest among the Group of 20 countries and is more than 28 times the overnight rate in the U.S. Buying the real with borrowed dollars in a carry trade has returned 35 percent this year, the most among 42 currencies tracked by Bloomberg.

"Sentiment for currencies such as the real has deteriorated slightly after the Chinese trade number, while the increase in likelihood of a Fed rate hike this year has supported the U.S. dollar over recent session," said Georgette Boele, a currency and commodity strategist at ABN Amro in Amsterdam and one of the real’s top forecaster in the past quarter.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, declined 0.03 percentage point to 11.97 percent.

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