--Brazil's real opens stronger, joining an emerging market currency rally
--Investors react positively to calls for banking union, industrial
data in Europe
--Brazilian real opens trading at BRL2.0556, stronger from Tuesday's
close at BRL2.0624
By Brian Asher
The Brazilian real traded stronger at the open Wednesday joining an
emerging market currency rally after the European Central Bank called
for a European banking union and a U.S. Federal Reserve official
supported further monetary stimulus.
The real gained ground against the dollar as investors cheered the
news from Europe, where Italian and Spanish bond yields declined and
industrial output for April weighed in higher than expected.
The Brazilian real opened at BRL2.0556 to the dollar, according to
Tullett Prebon via FactSet. That was stronger than Tuesday's close at
BRL2.0624.
Emerging market currencies mostly opened stronger Wednesday. The wave
of optimism resulted from a call by the European Central Bank for a
banking union with the power to regulate banks and guarantee deposits.
The Brazilian currency was a late comer to the rally, as it continued
to weaken late Tuesday before reversing course Wednesday morning.
Despite trading stronger Wednesday morning, the real is still weaker
than the 2.05 level that the market believes is the central bank's
unofficial ceiling for the currency. The central bank stayed on the
sidelines yesterday even as the currency weakened to BRL2.0624 to the
dollar.
Despite earlier complaints by Brazil's government over an overvalued
currency, the central bank has been uncomfortable with the real's
rapid depreciation in recent weeks. The central bank intervened in the
currency market twice last week and again on Monday, selling swaps to
inject dollars into the market and relieve the downward pressure on
the real.
But on Monday the central bank failed to sell even half of the $1
billion in swaps it was prepared to auction.
"The currency market continues to keep its eyes on the central bank,
evaluating whether the monetary authorities will sanction an exchange
rate above BRL2.05 to the dollar," said Miriam Tavares of AGK
Brokerage in Sao Paulo.
The real has rapidly depreciated this year, from BRL1.82 to the dollar
in March to BRL2.06 to the dollar at Tuesday's close.
Depressed demand in Europe and slowing growth in China have hurt
commodity prices this year, and Brazil's commodity heavy economy means
its currency often tracks commodity prices.
To prop up stagnating economic growth, which analysts now forecast at
2.53% for 2012, the central bank has aggressively cut the country's
Selic base rate four points since August 2011 to a record low of 8.5%.
Expectations of more rate cuts in July and August add to downward
pressure on the real.
-Write to Brian Asher at brian.asher@dowjones.com
(END) Dow Jones Newswires
June 13, 2012 09:25 ET (13:25 GMT)
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