The Real declined after Brazilâ€™s debt rating was lowered to two levels below investment grade by Moodyâ€™s Investors Service, which cited the governmentâ€™s failure to reduce its fiscal deficit amid deepening political turmoil.
The currency dropped 0.7 percent to 3.9864 at 9:50 a.m. in Sao Paulo. The outlook for the rating is negative, Moodyâ€™s said in a statement on Wednesday.
Brazilâ€™s real is the worldâ€™s worst performing major currency over the past year after the nation lost its investment-grade rating from Standard & Poorâ€™s in September and Fitch lowered it into junk territory in December. Brazilâ€™s credit metrics have deteriorated â€œmateriallyâ€ in the past few months and are expected to continue to worsen over the next three years, according to Moodyâ€™s, which said growth will be â€œanemicâ€ and political gridlock means President Dilma Rousseff will struggle to find backing in Congress for measures to raise taxes and reduce spending.
â€œWhile this cut was largely expected, it brings the focus back to the domestic situation,â€ said Georgette Boele, a foreign-exchange and precious metals strategist at ABN Amro Bank NV in Amsterdam. â€œBrazil is paralyzed by politics, the government is making an attempt to shore up fiscal accounts, but the political situation is not helping.â€
Swap rates on the contract maturing in January 2017, a gauge of expectations for Brazilâ€™s interest rates, fell 0.015 percentage point to to 14.19 percent.