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Bloomberg
The real strengthened as traders kept close watch on the U.S. Federal Reserve for signs regarding the timing and pace of interest rate hikes that could reduce the appetite for Brazil’s world-beating carry trade.
The currency appreciated 0.5 percent to 3.2431 per dollar at 9:31 a.m. in Sao Paulo. One-month implied volatility on the real dropped for the fifth straight session, shrinking 0.03 percentage point to 16.65 percent. Buying the real with borrowed dollars in a carry trade has returned 33 percent this year, the most among 42 currencies tracked by Bloomberg.
“It’s all about the Fed today, so the market, including Brazilian assets, should be tentative until we see the policy communication,†said Sacha Tihanyi, a senior emerging-market strategist at TD Securities in New York. “We’ve got a situation where a lot of the movements going forward will be influenced by the Fed’s bias.â€
In Brazil, former President Luiz Inacio Lula da Silva is facing criminal charges after a federal judge accepted prosecutors’ arguments that there is sufficient evidence to bring him to trial.