Brazil’s Real Falls to One-Week Low After Trade Deficit Report

09/03/2014 07:33 AST

The real declined to a one-week low a day after Brazil posted a trade deficit and foreign-exchange outflows, reducing the currency’s allure.

The real depreciated 0.7 percent to 2.3409 per dollar, paring its gain this week to 0.2 percent. Swap rates on contracts due in January 2017 rose 18 basis points, or 0.18 percentage point, to 12.55 percent, extending their weekly increase to 29 basis points.

“The market didn’t like the trade deficit and the outflow numbers from yesterday,” Jose Carlos Amado, a foreign-exchange trader at Renascenca DTVM in Sao Paulo, said in a phone interview. “That should weaken the currency.”

Nomura Holdings Inc. analyst Tony Volpon recommended today in an e-mailed research report selling the real and buying the Mexican peso on concern that at some point the U.S. economy will show itself to be stronger or weaker, either of which will have negative effects on weaker emerging markets. The trade deficit widened to $6.2 billion in the first two months of 2014 from $5.3 billion a year earlier, a report showed yesterday. Brazil posted foreign-exchange outflows of $1.86 billion in February and year-to-date outflows of $246 million.

Moody’s Investors Service reduced its outlook on Brazil’s Baa2 rating, the second-lowest investment grade, to stable from positive in October after Standard & Poor’s placed its comparable BBB on negative outlook in June. Both cited deteriorating finances.

‘Less Severe’

Brazil’s currency rallied on Feb. 20, when Finance Minister Guido Mantega said a reduction of 44 billion reais from this year’s budget will slow inflation and cut debt while allowing monetary policy to be “less severe.”

The government budget deficit as a percentage of gross domestic product increased in January to 3.6 percent, the widest since since 2009.

“The real rose too fast after the announcement of the budget cut,” Silvio Campos Neto, an economist at Tendencias Consultoria Integrada in Sao Paulo, said in a phone interview. “Now it is a moment of correction for the currency.”

The real extended its decline today after the U.S. Labor Department reported that employers added more jobs than economists surveyed by Bloomberg had forecast, fueling speculation that the Federal Reserve will keep curtailing monetary stimulus.

“Payroll numbers in the United States today were positive, which supports a dollar rise globally,” Neto said.

To support the real and limit import price increases, Brazil sold $197.8 million of foreign-exchange swaps today under a program announced in December.

Consumer prices increased 5.65 percent in the year through mid-February, above the central bank’s 4.5 percent target. Policy makers have raised borrowing costs by 350 basis points since April to 10.75 percent.

Bloomberg