RIO DE JANEIRO--The Brazilian real reversed course to weaken in early
afternoon trading Wednesday as investors continued to test the central
bank's comfort level for the currency.
At 1607 GMT, the real traded at BRL2.0657 to the U.S. dollar,
according to Tullett Prebon via FactSet. That was weaker from the
opening quote at BRL2.0556 and Tuesday's close at BRL2.0624.
Brazil's real tracked the strengthening euro in the morning after
positive news from Europe buoyed emerging-market currencies Tuesday
evening, but it has sharply weakened in recent trading.
"What you have today is a day with no big news, so there is no obvious
reason for the movement of the currency. What we are seeing now is the
market testing the central bank, seeing where it will enter the market
to stop the depreciation of the real," said Luiz Carlos Baldan,
director of the Fourtrade brokerage in Sao Paulo.
The real has been rangebound between BRL2.00 and BRL2.05 to the dollar
in recent weeks, with the Brazilian Central Bank intervening via
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 real is weakening sharply against the dollar.
Recently, however, the central bank has shown more tolerance for a
weaker local currency.
After selling less than half of the $1 billion in swaps it was
prepared to auction on Monday, the central bank stood by and watched
as the real weakened to BRL2.0624 to the dollar Tuesday and shows no
signs of entering the market Wednesday, traders said.
Meanwhile, the market also may have been reacting to the central
bank's release of weekly figures for foreign-exchange inflows and
outflows.
Dollars flowed into Brazil in the June 1-8 period as investors resumed
sending money into the country following a period of market volatility
and strong outflows seen in May.
Brazil registered net dollar inflows of $843 million in the first
eight days of June after posting outflows of $2.69 billion during the
month of May, the central bank reported Wednesday.
In addition to the effect overseas turmoil is having on the local
currency market, growing expectations for lower local interest rates
are 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 European crisis. Most analysts now expect the country's base
rate to the end the year at 7.75% or 8.0%.
Write to Brian Asher at brian.asher@dowjones.com
(END) Dow Jones Newswires
June 13, 2012 12:55 ET (16:55 GMT)
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