Bloomberg News

Brazilian Real Drops to One-Week Low on Intervention Speculation

August 23, 2012

Brazil’s real fell to a one-week low as speculation the central bank will intervene further to weaken the currency outweighed bets policy makers will add stimulus to bolster the global economy.

The real depreciated 0.4 percent to 2.0238 at 6 p.m. in Sao Paulo, the lowest on a closing basis since Aug. 14. Swap rates on the contract due in January 2014 rose three basis points, or 0.03 percentage point, to 7.96 percent, the highest since June 22. The swap rates have increased 10 basis points since Aug. 17.

Brazil’s central bank auctioned reverse currency swaps this week for the first time since March, reviving wagers the government will keep the rate weaker than 2 reais per dollar to protect local exporters and support growth. The prospect of further intervention drove the real’s decline even as most other major currencies gained on speculation rising U.S. jobless claims and signs of manufacturing weakness in Europe and China will prompt the Federal Reserve to adopt more stimulus.

“The real is fleeing a bit from the behavior of the external market,” Jose Carlos Amado, a currency trader at Renascenca DTVM Ltda., said by phone from Sao Paulo. “The central bank made it clear that it won’t let the dollar fall below 2, so this is stimulating dollar purchases.”

Brazil’s central bank on Aug. 21 sold 7,000 reverse swap contracts due on Sept. 3 of 50,000 offered. The central bank last sold reverse currency swaps March 26.

Economic Reports

The number of Americans filing applications for unemployment benefits climbed by 4,000 last week to a one-month high of 372,000 in the period ended Aug. 18. Other reports showed that euro-area services and manufacturing output contracted for a seventh straight month and China’s manufacturing may be shrinking at a faster pace.

Brazil’s policy makers have cut the target lending rate by 4.5 percentage points since August 2011 to a record low 8 percent to support growth. Rate futures yields indicate traders are projecting a reduction to as low as 7.5 percent by the end of this month. As recently as Aug. 21, they were betting on 75 basis points of cuts by October.

The Treasury said in a statement posted on its website that it sold all 5.8 million of zero-coupon bonds offered today, worth 4.6 billion reais ($2.3 billion). The government sold 810,000 of 1 million fixed-rate notes offered, worth 831 million reais.

Today’s auction was larger than usual to meet demand from investors wanting to buy fixed-rate debt instead of floating- rate securities, said Andre Ikeda, a trader at Nomura Holdings Inc. in New York.

“This trend is going to continue for a while,” he said in a telephone interview.

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

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


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