Business Maverick

Business Maverick

Brazilian Real Plunges to Record Low Against Dollar

Thiago Silva of Brazil reacts during the FIFA World Cup 2018 round of 16 soccer match between Brazil and Mexico in Samara, Russia, 02 July 2018. EPA-EFE/DIEGO AZUBEL

Brazil’s real, the world’s worst-performing currency this year, extended losses on Thursday even as the central bank stepped in to support it for the third time in a single day.

The Brazillian real fell 1.7% to 4.6581 per dollar as of 2:45 p.m. local time, holding onto losses after policy makers said they would hold a third $1 billion foreign-exchange swaps auction. The central bank earlier in the day held two auctions of 20,000 contracts each, totaling $2 billion.

The real, falling along with Latin American peers, is coming under pressure as traders increase bets authorities will reduce borrowing costs following the Federal Reserve’s emergency rate cut. The currency has fallen to new lows repeatedly since the beginning of February.

The Brazilian real has repeatedly reached new lows this year

The central bank said in a statement on Tuesday that it’s monitoring the impact of the coronavirus outbreak on financial markets and the wider economy. Markets interpreted the statement as a signal for further rate cuts, sending swap rates and the currency lower.

Brazil’s local swap curve is pricing in a 60% chance of a half-point rate cut at the central bank’s next meeting on March 18, compared with a near zero possibility the prior week. Traders had played down chances of further rate reductions after the central bank suggested in February the easing cycle was over, but resumed bets after the Fed’s move.

The real is down 13.3% this year, the worst start since 1999. It’s underperforming peers due to its diminished carry appeal, given that local rates have dropped to a record. Weak growth numbers also weighed on the currency, as well as positioning, since it’s used as a hedge for long positions in stocks and rates.

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