Real takes a reality check as Brazil strains to support its currency

Katie Martin – Financial Times, 10/4/2015

Brazil’s currency, the real, is tormenting many fund managers.  Few thought it would see out the year unscathed. The country’s high interest rates were never likely to be enough entirely to shield the currency from trading weakness at a time when the economy was shrinking and the US is on the cusp of raising interest rates.

But the real has contrived to stand out particularly among a field of emerging markets currencies almost all of which have suffered bruising declines.

The pace and scale of the fall in the Brazilian currency, once a popular pick as one of emerging markets’ juiciest bets, have stumped even the most seasoned observer and left some investors peeking at their screens through their fingers. “Mayhem” is how Rabobank described it; the source of “one of the wildest days we’ve ever seen in Latin American markets”.

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Brazil’s Real strengthens against dollar

Jeffrey T. Lewis – The Wall Street Journal, 9/24/2015

The Brazilian real strengthened against the dollar on Thursday, the first time in six sessions, after the president of the central bank said he is willing to use the country’s foreign reserves to defend the currency.

The real ended active trading at 4.0438 to the dollar, according to Tullett Prebon via FactSet, after closing at 4.1325 on Wednesday. Trading was volatile during the day, with the real hitting 4.2447 to the dollar in the morning, its weakest level since it was launched in 1994.

The real has been dropping against the dollar in recent days, pulled down by political turmoil and the country’s economic troubles.

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Brazil’s real falls to weakest point in 12 years

Reese Ewing – Reuters, 7/24/2015

Brazil’s real fell on Friday to its weakest against the dollar in 12 years, slipping quickly in early trade to 3.334 to the dollar.

The slide in the local currency comes after Brazilian Finance Minister Joaquim Levy announced on Wednesday the government would slash its primary surplus target due to deteriorating tax revenues amid Brazil’s deepening economic slump.

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Brazil stock traders recoil at Volpon’s rate call as real climbs

Denyse Godoy, Paula Sambo, and Filipe Pacheco – Bloomberg Business, 7/21/2015

Brazilian shares dropped to an almost four-month low on speculation borrowing costs at Latin America’s largest economy will increase further, curbing prospects for equities. The real advanced for the first time in four days.

The Ibovespa extended this month’s slump after central bank director Tony Volpon said policy makers should keep raising interest rates until the outlook for inflation reaches the government’s target. The benchmark stock gauge has tumbled 11 percent from this year’s peak on concern the decision to boost the Selic to a six-year high to tame consumer prices will deepen an economic contraction.

“The central bank will probably increase rates again next week in a trend that’s damaging the economy and prospects for companies,” Pedro Paulo Silveira, the chief economist at brokerage TOV Corretora, said by phone from Sao Paulo.

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Brazil real drops on concern Rousseff will lower budget target

Paula Sambo – Bloomberg Business, 7/13/2015

Brazil’s real fell from a one-week high as speculation that political tension will force President Dilma Rousseff’s administration to compromise on the budget cast doubt on her commitment to preserve the nation’s credit rating.

The currency extended its drop in July to 2.1 percent as lawmakers pushed back against her move to narrow government deficits. Concern mounted after the Brazilian newspapers Estado and Folha de S. Paulo reported that Rousseff will discuss a reduction in the fiscal target at a meeting Monday.

“While Rousseff’s effort to solidify the fiscal base is positive, the course of discussions and political barriers may trigger short-term volatility in the financial markets,” Ipek Ozkardeskaya, an analyst at London Capital Group, said in an e-mailed response to questions.

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Top Brazil hedge fund Verde sees domestic assets still falling

Guillermo Parra-Bernal and Paula Arend Laier – Reuters, 7/08/2015

Verde Asset Management, Brazil’s largest hedge fund, reinforced larger-than-benchmark bets on a weaker real, rising global equities and higher domestic borrowing costs, underscoring expectations that local asset prices will keep trending down in dollar terms.

In a monthly letter to investors on Wednesday, money managers led by Luis Stuhlberger said Verde is long-positioned in U.S. dollars and global equities by 40 percent and 20 percent, respectively, with no net allocation to local shares. The fund is also long positioned in Brazilian debt linked to inflation-adjusted interest rates.

Global investors are “overly optimistic” about Brazil’s outlook by assuming that domestic asset prices, as measured in U.S. dollars, are cheap and that a year-long decline in the Brazilian real is coming to an end.

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Brazilian real leads declines as China triggers rout in iron ore

Paula Sambo and Filipe Pacheco – Bloomberg Business, 7/08/2015

The real led losses among major currencies as China’s equity meltdown triggered a plunge in the price of Brazil’s iron-ore exports.

A drop in the shares of Rio de Janeiro-based Vale SA, the world’s biggest miner of the raw material, added to concern that international investors are withdrawing funds from Brazil. Iron ore sank Wednesday to the lowest level in at least six years as China’s stock decline threatened demand just as the largest producers including Vale raised output.

“Plummeting iron-ore prices put pressure on the real,” Kenneth Lam, a Citigroup Inc. strategist in New York, wrote in a research report to clients.

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