Brazil’s real dropped from a two- week high after the central bank auctioned reverse currency swaps to support exporters by preventing appreciation.
The currency fell 0.2 percent to 2.0286 per U.S. dollar at 11:31 a.m. after rallying yesterday to 2.0242, the strongest closing level since Oct. 4.
The real extended its drop to 8 percent this year, the biggest decline among the 16 most- traded currencies tracked by Bloomberg.
The central bank said today it auctioned 33,000 reverse currency swaps contracts out of 60,000 offered, including those due on Dec. 3 for $849 million and contracts due on Jan. 2 for $799 million.
“The real came very close to 2.02 yesterday, so we were expecting intervention,” Hideaki Iha, a currency trader at Fair Corretora de Cambio e Valores, said in a phone interview from Sao Paulo.
“If we didn’t have these interventions, the real would easily be stronger than 2 per dollar. We’re working with a currency band now, a dirty float.”
The decline in the Brazilian real to a “more favorable” level this year has allowed manufacturers to boost exports even as global trade remains weak, Finance Minister Guido Mantega told reporters Oct. 13 in Tokyo, where he was attending the International Monetary Fund’s annual meeting.
The central bank sold $1.3 billion in reverse currency swaps on Oct. 5, $5.7 billion of contracts Sept. 12 through Sept. 17 and $350 million on Aug. 21 to weaken the real. The August reverse swaps were the first since March.
‘Neutral’ Reaction
The reaction was “neutral” compared with larger moves triggered by past interventions because today’s sale of reverse currency swaps is a rollover of contracts expiring Nov. 1, Alfredo Barbutti, an economist at Liquidez DTVM, said in a phone interview from Sao Paulo.
Spain’s drop in gross domestic product for a fifth quarter and speculation that Australia’s Reserve Bank may cut borrowing costs contributed to the drop in emerging-market assets including the real.
“The euro and Australian dollar are falling with the global economy getting worse and the effect of the Fed’s actions exhausting themselves,” Barbutti said.
The Federal Reserve announced last month a third round of asset purchases known as quantitative easing, or QE3, saying it intends to buy $40 billion of mortgage debt a month until the labor market shows sustained improvement. It also expects to keep the target lending rate at virtually zero at least through the middle of 2015.
Slowing Inflation
Brazil’s swap rates fell as evidence of slowing inflation spurred speculation that the central bank will keep borrowing costs at a record low for an extended period.
The IPC-S inflation index, which monitors consumer prices in Brazil’s seven biggest cities, increased 0.57 percent in the 30 days ended Oct. 22 after rising 0.62 percent in the prior period.
The median forecast of 18 economists in a Bloomberg survey was for a 0.58 percent advance. Policy makers cut the target lending rate for a 10th straight meeting to a record low 7.25 percent on Oct. 10 to revive the slowest growth among major emerging markets.
Swap rates on contracts due in January 2014 fell three basis points, or 0.03 percentage point, to 7.37 percent today.
bloomberg.com
The currency fell 0.2 percent to 2.0286 per U.S. dollar at 11:31 a.m. after rallying yesterday to 2.0242, the strongest closing level since Oct. 4.
The real extended its drop to 8 percent this year, the biggest decline among the 16 most- traded currencies tracked by Bloomberg.
The central bank said today it auctioned 33,000 reverse currency swaps contracts out of 60,000 offered, including those due on Dec. 3 for $849 million and contracts due on Jan. 2 for $799 million.
“The real came very close to 2.02 yesterday, so we were expecting intervention,” Hideaki Iha, a currency trader at Fair Corretora de Cambio e Valores, said in a phone interview from Sao Paulo.
“If we didn’t have these interventions, the real would easily be stronger than 2 per dollar. We’re working with a currency band now, a dirty float.”
The decline in the Brazilian real to a “more favorable” level this year has allowed manufacturers to boost exports even as global trade remains weak, Finance Minister Guido Mantega told reporters Oct. 13 in Tokyo, where he was attending the International Monetary Fund’s annual meeting.
The central bank sold $1.3 billion in reverse currency swaps on Oct. 5, $5.7 billion of contracts Sept. 12 through Sept. 17 and $350 million on Aug. 21 to weaken the real. The August reverse swaps were the first since March.
‘Neutral’ Reaction
The reaction was “neutral” compared with larger moves triggered by past interventions because today’s sale of reverse currency swaps is a rollover of contracts expiring Nov. 1, Alfredo Barbutti, an economist at Liquidez DTVM, said in a phone interview from Sao Paulo.
Spain’s drop in gross domestic product for a fifth quarter and speculation that Australia’s Reserve Bank may cut borrowing costs contributed to the drop in emerging-market assets including the real.
“The euro and Australian dollar are falling with the global economy getting worse and the effect of the Fed’s actions exhausting themselves,” Barbutti said.
The Federal Reserve announced last month a third round of asset purchases known as quantitative easing, or QE3, saying it intends to buy $40 billion of mortgage debt a month until the labor market shows sustained improvement. It also expects to keep the target lending rate at virtually zero at least through the middle of 2015.
Slowing Inflation
Brazil’s swap rates fell as evidence of slowing inflation spurred speculation that the central bank will keep borrowing costs at a record low for an extended period.
The IPC-S inflation index, which monitors consumer prices in Brazil’s seven biggest cities, increased 0.57 percent in the 30 days ended Oct. 22 after rising 0.62 percent in the prior period.
The median forecast of 18 economists in a Bloomberg survey was for a 0.58 percent advance. Policy makers cut the target lending rate for a 10th straight meeting to a record low 7.25 percent on Oct. 10 to revive the slowest growth among major emerging markets.
Swap rates on contracts due in January 2014 fell three basis points, or 0.03 percentage point, to 7.37 percent today.
bloomberg.com
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