Brazil’s Real Gains on Central Bank Support While Stocks Advance

  • Central bank auctioned $500 million of foreign-exchange swaps
  • Emerging-market currencies dropped on U.S. rate hike concern

Brazil’s real rose to a one-week high as intervention from the central bank helped insulate it from a broad emerging-market selloff, while stocks advanced amid higher commodity prices.

The currency strengthened 1.2 percent to 3.3818 per dollar Friday in Sao Paulo, posting the biggest advance among developing countries as most of its peers declined. The Ibovespa stock gauge climbed 0.3 percent to 59,961.76 after falling as much as 0.7 percent earlier.

The real was supported by the central bank’s auction of 10,000 foreign-exchange swaps, a move equivalent to selling $500 million. The monetary authority has been offering the contracts since last Friday after Donald Trump’s unexpected election helped trigger the steepest three-day decline in the currency since 2011.

"The central bank is doing a good job,” said Pablo Spyer, operational director at Mirae Asset Wealth Management in Sao Paulo. “Turbulence in foreign markets is too strong."

Other emerging-market currencies weakened after Federal Reserve Chair Janet Yellen suggested Thursday that the central bank remained on course to raise borrowing costs. Brazil, where benchmark interest rates are 28 times those in the U.S., is especially vulnerable to changes in rates as the yield gap between the two has helped propel this year’s world-beating gain in the real.

Brazil’s benchmark equity gauge posted its first weekly gain after two weeks of declines as the slump attracted bargain hunters. This week’s 0.8 percent advance in the Bloomberg Commodity Index -- the first in five weeks -- also helped to support the gauge, as raw materials producers account for 27% of the Ibovespa’s weighting.

Sugar and ethanol producer Cosan SA rose the most on the Ibovespa, adding 4.1 percent as sugar prices rose. Steelmaker Gerdau SA added 3,8 percent, extending this week’s gain to 10 percent.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, fell 0.04 percentage point to 12.38 percent. Rates on the contracts rose 0.05 percentage point this week.

— With assistance by Andressa Lelli, and Josue Leonel

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