Reuters: US Dollar Report: EMERGING MARKETS-Brazil real rallies as central bank intervenes

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EMERGING MARKETS-Brazil real rallies as central bank intervenes Dec 3rd 2012, 17:05 Tweet Share this Email Print Related Topics Currencies » Bonds News » Bonds » Markets » Mon Dec 3, 2012 12:05pm EST * Brazil cenbank calls two swap auctions to support real * Data on China manufacturing revival supports risk appetite * Brazil real jumps 0.9 pct, Mexico peso gains 0.2 pct By Walter Brandimarte RIO DE JANEIRO, Dec 3 (Reuters) - The Brazilian real rallied over 1 percent on Monday after the central bank acted to prop up the currency from a 3-1/2-year low, while data showing a Chinese manufacturing pickup supported Latin American currencies in general. The real had dropped to 2.1382 per dollar, its weakest level since early May 2009, when the central bank called two consecutive auctions to sell traditional currency swaps -- derivative contracts that support the real by emulating the sale of dollars in the futures market. The real erased its losses and jumped as much as 1.6 percent after the auctions, which suggested the central bank was not comfortable with the currency's fast depreciation pace. It last traded 0.9 percent stronger at 2.1115 per dollar. "The central bank's actions suggest the real at 2.10 per dollar would be a comfortable level to boost exports without fueling inflation," said a trader with a large Brazilian bank. Bets on a weaker real greatly increased after data showed the Brazilian economy grew at half the rate economists expected in the third quarter. Banks such as JP Morgan recommended investors reduce their holdings of real. "A deterioration in the investment perspective -- confidence has been hit hard by government activism and mediocre growth -- explains a significant part of the revision," JP Morgan analysts wrote in a report released after the close of the Brazilian foreign exchange market on Friday. The bank recommended investors hedge 20 percent of their exposure to the Brazilian real. While economists expect the government to favor a weaker currency to boost exports, the central bank is unlikely to allow the real to slide too much, too fast. The Brazilian currency lost 4.7 percent in November, 2.3 percent of that just in the last week of the month. "The real had weakened too quickly last week," said Luiz Fernando Genova, a currency trader with Banco Daycoval in Sao Paulo. "The central bank doesn't want such fast moves." Investors' appetite for risk also supported the real and other Latin American currencies after data showed China's manufacturing sector expanded in November for the first time since October 2011. Gains were capped, however, after data showed U.S. manufacturing unexpectedly contracted in November. The Mexican peso gained 0.2 percent while the Colombian peso <COP=STFX and the Peruvian sol were little changed. The Chilean peso edged lower 0.1 percent. Latin American FX prices at 1625 GMT Currencies daily % YTD % change change Latest Brazil real 2.1115 0.87 -11.51 Mexico peso 12.9410 0.18 7.95 Argentina peso* 6.4200 0.31 -26.32 Chile peso 481.3000 -0.10 7.90 Colombia peso 1,814.8500 0.01 6.81 Peru sol 2.5780 0.00 4.62 * Argentine peso's rate between brokerages Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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