SAO PAULO--Brazil's real weakened again on Monday as investor
enthusiasm for a bailout of Spain's troubled banking sector waned and
there was wariness ahead of Greek elections.
The real traded at BRL2.0406 to the U.S. dollar at 1:10p.m. ET,
according to Tullett Prebon via FactSet. That was weaker from the
opening quote at BRL2.0197 and Friday's close at BRL2.0248.
"The real opened a bit strong after news of the Spanish bailout," said
Reginaldo Siaca, foreign-exchange manager at Sao Paulo brokerage
Advanced. "Now we're seeing a slight correction of the optimism of
this morning, given the continued anxiety over Greece's election."
The real has been rangebound between BRL2.00 and BRL2.05 to the dollar
in recent weeks, with the Brazilian Central Bank intervening with
dollar swaps at the top end to keep the real from weakening too
quickly. Dollar-swap auctions allow investors to exchange paper linked
to domestic interest rates for contracts indexed to the U.S. dollar.
The auctions are a tool to smooth volatility in the exchange market at
times when the Brazilian real is weakening sharply against the dollar.
After opening a bit stronger the real started to slide and the central
bank on Monday once again stepped in with a swap auction. That pared
losses momentarily, but shortly after, the real continued to slide,
breaking past 2.04 per dollar.
In addition to the effect overseas turmoil is having on the local
currency market, Mr. Siaca noted growing expectations for lower local
interest rates as a motive behind the weaker currency against the
dollar.
The Brazilian Central Bank has slashed the benchmark Selic base rate
to 8.5% from an August 2011 peak of 12.5% to stem any impact on Brazil
from the ongoing European crisis. Economists and market analysts
parsing the minutes from the bank's May meeting, released last week,
to divine the future direction of interest rates have pointed toward
additional rate cuts this year.
Earlier Monday, UBS said that the dovish tone of the minutes likely
means at least two more rate cuts. "The easing cycle does not seem
close to its end," UBS said in a research report. The firm reduced its
2012 year-end forecast for the Selic to 7.5% from 7.75%. UBS expects
the Brazilian Central Bank to implement a half-percentage point rate
reduction at its next meeting in July.
-Write to Paulo Winterstein at paulo.winterstein@dowjones.com
--Jeff Fick and Brian Asher in Rio de Janeiro contributed to this report.
(END) Dow Jones Newswires
June 11, 2012 13:34 ET (17:34 GMT)
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