Reuters: US Dollar Report: EMERGING MARKETS-Brazil rate futures fall on cenbank minutes

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EMERGING MARKETS-Brazil rate futures fall on cenbank minutes Jul 19th 2012, 18:46 Thu Jul 19, 2012 2:46pm EDT * Brazil central bank hints at one more rate cut at least * Mexico peso falls with lackluster US economic data * Brazil real hovers above 2.0/dlr, stuck in narrow range By Walter Brandimarte and Danielle Fonseca RIO DE JANEIRO, July 19 (Reuters) - Brazilian interest rate futures declined on Thursday after minutes of the central bank's latest monetary policy meeting left the door open to further cuts in Brazil's base interest rate, the Selic. Meanwhile, the Brazilian real hovered slightly above 2.0 per dollar as investors feared the central bank could intervene if the currency strengthened past that level, and the Mexican peso weakened slightly after lackluster U.S. economic data. Brazil's domestic yield curve shows investors have largely priced in at least one more 50-basis-points cut in August in the Selic, which currently stands at an all-time low of 8 percent. But markets remain split about the possibility of another small cut in October. In its minutes, the central bank repeated that lower-than-expected global economic growth will continue to have a disinflationary impact on Brazil, leading analysts to conclude that policymakers will seize the opportunity to further reduce the country's interest rates. "The external scenario still brings a lot of uncertainty and the central bank can't miss this opportunity to cut the Selic," said Paulo Nepomuceno, a fixed-income strategist at Coinvalores brokerage in Sao Paulo. But the minutes also brought some hawkish twists. The central bank anticipated domestic economic activity will gather speed in the second half of the year and saw a lower probability of "extreme events" in international financial markets. "I believe the central bank is closer to stopping cutting rates than it was before," said Luiz Otavio de Souza Leal, chief economist at Banco ABC Brasil. "What's noteworthy is that the central bank expects a more robust recovery in the second half of the year." Interest rate contracts maturing in January 2013 declined 5 basis points to 7.40 percent while contracts due January 2014 fell 7 basis points to 7.69 percent. Rates had risen this week on expectations the central bank would add some hawkish remarks to the minutes and on recent price indexes that showed inflation starting to accelerate. LATAM CURRENCIES MIXED Latin American currencies traded with no common direction, with the Mexican peso weakening 0.6 percent after economic data showed the U.S. Mid-Atlantic region contracted for a third straight month in July and the number of Americans filing for unemployment benefits surged last week. Investors feared an economic slowdown in the United States, Mexico's main trading partner, could have a negative impact on the Mexican economy and the peso. "As we see bad data in the United States we have a certain bias toward a weaker peso," said Gabriel Lozano, senior economist with Santander in Mexico City. The Chilean peso, on the other hand, gained 0.45 percent to 485.40 per greenback. But the Brazilian real was little changed from Wednesday's close, at 2.019 per dollar. It has been stuck within a narrow range for the past two weeks, under the threat of central bank intervention. In the past several weeks, the Brazilian central bank has intervened heavily whenever the real weakens to near 2.1 per dollar. On the other hand, it has also said that a currency stronger than 2 per greenback would hurt exporters. The real could gain slightly in the next few days, however, as investors test the lower end of the central bank's informal trading range, analysts said. "The market is working with a possible central bank intervention as traders believe that, if the real gains past 2 per dollar, the central bank will act to curb currency gains," said Reginaldo Galhardo, manager at the foreign exchange desk of Treviso brokerage in Sao Paulo. Latin American currency prices at 1820 GMT Currencies daily % YTD % change change Latest Brazil real 2.0190 0.09 -7.45 Mexico peso 13.2256 -0.57 5.62 Argentina peso* 6.5500 2.90 -27.79 Chile peso 485.4000 0.45 6.98 Colombia peso 1,780.4000 -0.23 8.87 Peru sol 2.6190 0.08 2.98 * Argentine peso's rate between brokerages Link this Share this Digg this Email Reprints

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