Reuters: US Dollar Report: Brazil central bank struggles to halt currency slide

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Brazil central bank struggles to halt currency slide Aug 19th 2013, 14:57 Tweet Share this Email Print Mon Aug 19, 2013 10:57am EDT * Real slides to 2.41/dollar early in the session * Investors bet on more aggressive rate hikes to curb inflation * Real stabilizes around 2.4/dlr after 2 cenbank interventions By Walter Brandimarte RIO DE JANEIRO, Aug 19 (Reuters) - The Brazilian real stabilized near the mark of 2.4 per dollar on Monday after the central bank took strong measures to halt a six-day currency slide that has added to inflation fears in Latin America's largest economy. Worried that policymakers may have to step up their monetary tightening campaign, investors pushed interest-rate futures sharply higher - so much that the yield curve now shows a 50 percent chance that the benchmark Selic rate may rise by 75 basis points next week, not the half percentage point most economists had forecast. (See table below.) The real opened weaker, reaching an intraday low of 2.4165 per dollar, as fears about the impact of a likely withdrawal of U.S. stimulus measures continued to weigh on emerging market currencies globally. Concerns about Brazil's economic and fiscal outlook added to the poor performance of the real, which has lost more than 5 percent of its value last week to trade at its weakest levels since early March 2009. "The horizon is still cloudy (for the real), with the fiscal and economic situation remaining the same," Citi currency strategists wrote in a note to clients. Analysts expect the real to trade at 2.50 to 2.70 to the dollar through the end of the year, although it may sink as low as 2.420 in the short term, the Citi note said. An auction of traditional currency swaps - derivative contracts that emulate an injection of dollars in the futures market - scheduled for Monday morning did nothing to stop the real from weakening further in the beginning of the session. That auction was part of the central bank's efforts to roll over about $5 billion in swaps that will expire at the beginning of September and, for that reason, was not expected to bring meaningful relief to the currency market. It was only after the central bank announced another auction to sell an additional 40,000 contracts of swaps maturing in November and April that the real started to recover. It last traded at 2.3961 per dollar, little changed from Friday's close, after policymakers said they had sold all the 40,000 additional swaps as well as the 20,000 contracts to roll over expiring maturities. Most-traded interest rate DI contracts at 1420 GMT Month Ticker Last(pc Previous Change t) Close(pct) (p.p.) OCT3 8.68 8.666 0.014 JAN4 9.25 9.2 0.05 JAN5 10.45 10.33 0.12 JAN6 11.34 11.18 0.16 JAN7 11.72 11.61 0.11 Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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