Reuters: US Dollar Report: EMERGING MARKETS-Brazil interest rate futures firm on retail data

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EMERGING MARKETS-Brazil interest rate futures firm on retail data Oct 15th 2013, 17:51 Tweet Share this Email Print Reprints Tue Oct 15, 2013 1:51pm EDT RIO DE JANEIRO, Oct 15 (Reuters) - Brazil's interest rate futures rose on Tuesday after stronger-than-expected retail sales data suggested the central bank will keep raising interest rates to discourage inflation. Brazilian interest rate futures are widely watched as they gauge market expectations about future monetary policy decisions by the central bank. Higher rates have the potential of making fixed-income investments denominated in the Brazilian currency more attractive for foreigners. On Tuesday, however, the Brazilian real and other key Latin American currencies were little changed as investors traded cautiously before a deal was reached to avoid a debt default in the United States. Mexico's peso was the most notable exception, gaining 0.4 percent to 12.952 per dollar and crossing again the psychological relevant level of 13 per dollar. U.S. senators expressed hope that a bipartisan deal could emerge on Tuesday to end Washington's fiscal crisis even as Republicans in the House of Representatives said they were working on a separate plan. The U.S. Treasury is expected to exhaust its borrowing authority on Thursday, raising the prospect of a debt default a few weeks later. * The Brazilian real was virtually unchanged at 2.1770 per dollar, around its strongest level in nearly four months. * Investors were unwilling to push the real substantially higher due to a widely-held perception that the government does not want an exchange rate much stronger than 2.2 per dollar. * Underpinning that perception about the real was talk that the central bank could not roll over all of the $8.9 billion worth of currency swap contracts, derivatives designed to support the real, that will expire on Nov 1. The central bank has declined to comment. * Brazil's interest-rate contracts mostly rose after the government said retail sales jumped 0.9 percent in August from July, better than the most optimistic forecast in a Reuters poll of 29 economists. * The data showed "the strength of (Brazil's) domestic market," said Fernando Mendes, a fixed-income manager at Lerosa Investimentos in Sao Paulo. "The data increases the possibility of a half percentage point increase in the base interest rate, although it needs to be seen in a wider context." * Brazil's interest-rate contract maturing in Jan 2015 , which had already jumped 30 basis points in the previous five sessions, rose to as much as 10.43 percent after the retail sales data, a rise of 5 basis points over Monday's close. It later trimmed gains, however, to trade flat at 10.38 percent. * Still, Brazilian rate futures' yield curve shows a large probability that the country's central bank benchmark Selic rate will be raised to 10 percent in November, from its current level of 9.5 percent. * In Mexico, the peso has posted gains during three of the past four sessions on expectations of a resolution to the U.S. fiscal impasse. Those gains have taken the currency near its 100-day moving average of 12.927 per dollar, which is considered an important resistance level. Latin America FX prices at 1628 GMT: Currencies daily % YTD % change change Latest Brazil real 2.1757 0.04 -6.24 Mexico peso 12.9520 0.37 -0.68 Chile peso 498.7000 0.08 -4.01 Colombia peso 1883.5000 -0.09 -6.24 Peru sol 2.7690 0.00 -7.87 Argentina peso 5.8375 -0.09 -15.85 Argentina peso 9.6200 1.04 -29.52 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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