Brazilâ€™s real led losses among its most-traded peers as the central bank intervened to weaken the currency in a bid to slow this yearâ€™s rally and support
The real dropped 1.9 percent to 3.5017 on Monday, making it the worldâ€™s worst-performing currency after Libyaâ€™s dinar. The loss came after the monetary authority sold 40,000 reverse swaps, a move thatâ€™s equivalent to buying $2 billion in the futures market.
Brazilâ€™s real is still up 13 percent this year, heading for its best annual gain since 2009, on speculation that a new government will be able to restore growth and curb a record budget deficit. Beginning in March, policy makers started selling reverse swaps in a bid to keep it from appreciating so much that it impairs the competitiveness of Brazilâ€™s exports.
â€œThe intervention is the main driver of the currency today, with the central bank working to reduce volatility and holding the currency at a reasonably good level for external accounts,â€ said Italo Abucater, the head of currency trading at ICAP Brasil Ctvm in Sao Paulo. â€œStill, politics is the driver for the longer-term move.â€
Franklin Templeton said it is increasing its investments in Brazil, betting the expected ouster of President Dilma Rousseff this month will boost the countryâ€™s assets. The impact of Rousseffâ€™s potential removal isnâ€™t yet fully priced into Brazilian stocks, Mark Mobius, executive chairman of the fund managerâ€™s emerging-markets group, said in a television interview with Bloomberg Markets Middle East. The real is his favorite currency in developing nations, he said.
Vice President Michel Temer â€” Rousseffâ€™s successor should she be removed â€” intends to get investor-friendly measures approved quickly in Congress, paving the way for rate cuts, according to a report in O Estado de S. Paulo.
Brazil raised the taxation on foreign exchange purchase in cash from 1.1 percent from 0.38 percent, according to a decree published on Monday in the official gazette. The measure is expected to generate additional revenue of $686 million per year, Fernando Mombelli, a revenue service official, said in Brasilia.
One-month implied volatility rose 0.87 percentage point to 18.17 percent, the highest among 16 major currencies tracked by Bloomberg. The cost of insuring Brazilian bonds in the credit-default swaps market for five years dropped 1.77 basis points, reaching 335.25 basis points.
Swap rates on the contract maturing in January 2017, a gauge of expectations for interest rates, rose 0.06 percentage point to 13.66 percent.