Bloomberg News

Brazilian Real Drops to Three-Month Low After Dollar Purchases

April 17, 2012

Brazil’s real fell to its lowest level since January after the central bank bought dollars in the spot market to protect exporters from a strong local currency.

The real erased an earlier gain as the central bank purchased greenbacks at two auctions today. President Dilma Rousseff has vowed to protect manufacturers from the “monetary tsunami” created by developed nations that had driven up the real. Interest-rate futures dropped on bets policy makers may make further cuts in borrowing costs after this week’s meeting.

“As the central banks keeps buying dollars every day, the market becomes more cautious about betting on a stronger real,” Italo Abucater, head of foreign-exchange trading at Icap do Brasil Ctvm, said in a telephone interview from Sao Paulo. “The real was stronger at the opening, with more optimism in the global markets, but then the central bank intervened and reversed the trend.”

The real slid 0.7 percent to 1.8611 per U.S. dollar today in Sao Paulo after touching 1.8613, the weakest level since Jan. 3. The real has gained 0.3 percent this year.

Brazil’s currency has been weaker than 1.80 versus the dollar since mid-March, when the government expanded financial taxes to discourage capital inflows and protect exporters.

The real appreciated earlier today along with most of the 25 emerging-market currencies tracked by Bloomberg after Spain placed more than the 3 billion-euro ($3.9 billion) maximum target in a bill sale, easing sovereign-debt concern and encouraging demand for higher-yielding assets.

Interest-Rate Futures

The yield on the Brazilian interest-rate futures contract due in January 2014 fell four basis points, or 0.04 percentage point, to 9.1 percent. Traders speculated the central bank may indicate there is more room to reduce borrowing costs after it cuts the benchmark Selic rate at its two-day monetary policy meeting beginning today.

“Investors are increasing bets that the central bank may leave the door open for the next Copom meetings,” Marcelo Fonseca, an economist at M. Safra & Co. DTVM SA in Sao Paulo, said in a telephone interview. “The chances are slim, but the market is thinking that maybe they’re not that low.”

Traders are anticipating central bank President Alexandre Tombini will reduce the Selic rate by 75 basis points this week to 9 percent, according to rate futures yields.

Policy makers have lowered the benchmark by 275 basis points since August to 9.75 percent. In the minutes of its March 6-7 meeting, the central bank said there’s a “high probability” that the Selic rate will fall to just above its record low 8.75 percent and stay there.

To contact the reporter on this story: 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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