Bloomberg News

Brazil Real Advances on Bets Central Bank May Support Currency

October 05, 2011

Oct. 5 (Bloomberg) -- Brazil’s real strengthened for a second day on speculation the central bank will act to stop the currency’s depreciation against the dollar while European policy makers act in concert to shield banks from the sovereign debt crisis.

The real advanced 1.4 percent to 1.8327 per dollar, from 1.8581 yesterday. It was the third-best performer among 16 major currencies tracked by Bloomberg.

The real rose after policy makers moved to prop it up by auctioning currency swaps contracts for a second consecutive day yesterday. Brazil’s central bank sees no reason why the real should fall against the dollar more than other currencies and will use swaps contracts to combat such market distortions, the newspaper Valor Economico reported, without saying how it got the information.

“The central bank demonstrated that it will defend the real when there is greater volatility,” Mauricio Junqueira, who helps manage about $300 million at Squanto Investimentos in Sao Paulo, said in a telephone interview. “I think they’re happy with the current level.”

Most emerging-market currencies rallied today and the lira jumped from a record low after policy makers in Turkey and Russia stepped up sales of foreign-currency reserves to counter a selloff in developing-nation assets.

Brazil’s central bank isn’t targeting a specific exchange rate, Sao Paulo-based Valor said. Lower-ranking government officials have discussed a strategy to intervene in the currency market if the real weakens beyond 1.90 reais per dollar, the newspaper said.

Real ‘Ceiling’

“The central bank is showing a ceiling” for the real’s value, Deives Ribeiro, head of currency trading at Fair Corretora de Cambio e Valores, said in a telephone interview from Sao Paulo. “The central bank didn’t say it clearly, but it showed that if the real reaches 1.90 it will sell currency swaps.”

Brazil’s central bank entered the derivatives market on Sept. 22 for the first time in two years to bolster the real after it reached a two-year low of 1.9549.

The real was also boosted by speculation European policy makers will act in concert to shield banks from the sovereign debt crisis, Italo Abucater, head of currency trading at ICAP Brasil in Sao Paulo, said in a telephone interview.

“Today is one more day leaders managed to stall the crisis,” he said. “We’ll see what power they have to resolve this. The situation is still uncomfortable.”

European Union finance ministers are discussing ways to coordinate recapitalizations of banks, the Financial Times reported, while France and Belgium said a “bad bank” will be set up to hold Dexia SA’s troubled assets.

Commodities Advance

Commodities rebounded from the lowest level in 10 months after Federal Reserve Chairman Ben S. Bernanke said the central bank may take further steps to sustain an economic recovery.

The Standard & Poor’s GSCI Spot Index rose 2.8 percent.

Yields on the interest-rate futures contract due in January 2013, the most actively-traded today, fell five basis points, or 0.05 percentage point, to 10.22 percent. Yields on the contract earlier rose as much as five basis points.

“The market is without a reference, more sensitive to sources and the comments of officials, given the surprise rate cut at the August meeting and the uncertainty abroad,” Zeina Latif, a Latin America economist at RBS Securities Inc., said in a telephone interview.

--Editors: Richard Richtmyer, Brendan Walsh

To contact the reporters on this story: Josue Leonel in Sao Paulo at jleonel@bloomberg.net; Gabrielle Coppola in Sao Paulo at gcoppola@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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