Brazil Real Falls After Central Bank Cuts Support, Stocks Gain

  • Stronger U.S. data bolstered the outlook for rate hikes
  • Monetary authority abstained from intervening to support real

Brazil’s real posted its worst decline in almost two weeks after the central bank refrained from intervening to prop it up, even as U.S. economic data bolstered the case for higher borrowing costs in dollars.

The currency weakened 1 percent to 3.3903 per dollar Wednesday in Sao Paulo, its biggest decline since the surprise victory of Donald Trump in the U.S. presidential election. The central bank had been acting to insulate the real from a broad emerging-market selloff by auctioning foreign-exchange swaps and offering to roll over existing contracts. Wednesday marked the first time since the election that the bank didn’t do either.

The lack of support left the currency to fall along with other high-yielding economies’ currencies after better-than-estimated durable goods orders in the U.S. fueled speculation the Federal Reserve may raise rates faster than previously expected. That overshadowed news that President Michel Temer and state governors reached an agreement to help states better endure a fiscal crisis and keep the country’s cost-cutting drive on track.

"The central bank is being quite effective by intervening to contain price and liquidity distortions," said Ricardo Gomes da Silva, the foreign-exchange trading head at brokerage Correparti, in Curitiba.

The Ibovespa added less than 0.1 percent to 61,985.91 as steelmakers rallied amid higher metal prices. Metalurgica Gerdau SA jumped 8 percent, the best performer on the gauge. Miner Vale SA shares rose for a third consecutive day. Shares of pulp makers Fibria Celulose SA and Suzano Papel & Celulose SA climbed more than 1.3 percent as they benefit from the weaker real because a large share of sales are denominated in dollars.

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, were unchanged at 12.14 percent.

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