Fri Aug 16, 2013 6:12pm EDT
By Walter Brandimarte and Tiago Pariz RIO DE JANEIRO, Aug 16 (Reuters) - The Brazilian real fell to its weakest level in more than four years on Friday even as the government tried to calm investors nervous about a faltering domestic economy and an expected withdrawal of U.S. stimulus measures. While the central bank intervened twice to provide dollar liquidity in the futures market, Finance Minister Guido Mantega said Brazil has several "weapons" to fight volatility in the foreign exchange rate, including its foreign reserves. Efforts to support the real failed to stop it slumping 2.4 percent to 2.3945 per dollar, its weakest level since early March 2009. Some analysts did not rule out a short-term spike in the real toward 2.50 per greenback. "We have a scary market in the very short term," said Jaime Ferreira, currency desk manager at Intercam, a brokerage in Sao Paulo. "We have pressure for the roll-over of swaps and the possibility of the Federal Reserve cutting back on stimulus." Brazil's central bank has been offering traditional currency swaps, derivatives that emulate a sale of dollars in the futures market, to smooth out a currency sell off resulting, in part, from fears that U.S. policymakers are about to cut down on stimulus measures that have long supported appetite for emerging market assets. Growing expectations that the Fed will start rolling back the stimulus as early as next month have weighed on most emerging market currencies on Friday: the Mexican peso lost 0.7 percent to 12.91 per dollar, while the Chilean peso ended 0.9 percent weaker at 512.60 per greenback. (See table below) The real has suffered more than its peers as investors also fret about deteriorating prospects for the Brazilian economy. "In the short-term, before nervousness about Fed tapering abates, a spike towards the neighborhood of 2.5 per dollar cannot be ruled out," analysts at Brasil Plural brokerage wrote in a research note. SWAPS OR SPOT DOLLAR SALES So far, Brazil's central bank has avoided burning its foreign reserves to fight a dollar appreciation trend that analysts consider global. Instead, it has provided investors with hedge against a further depreciation of the real by selling currency swaps. That strategy has already run its course, however, as companies are no longer interested in buying FX protection at current levels, said Sidnei Nehme, a director with NGO brokerage in Sao Paulo. "Those who wanted hedge, have already done it. Besides that, the spot market is lacking liquidity now. That's where the pressure is coming from," Nehme said, joining the chorus of analysts who say that only with dollar sales on the spot market will the central bank be able to halt the real's depreciation. However, in a Thursday statement announcing plans to roll over expiring swaps, the central bank said it would continue with its policy of intervention in the futures market, leading investors to believe that spot dollar sales are off the table for now. Instead, the central bank remains focused on rolling over 100,800 swaps worth about $5 billion that mature on Sept. 2. Allowing those contracts to expire would further weigh on the exchange rate. The roll-over began on Friday with a sale of 20,000 contracts maturing on April 1, 2014. The auction was worth about $990 million, enough to replace nearly one-fifth of the expiring maturities. After the markets closed, the central bank announced another roll-over auction for Monday. The bank also sold 21,600 contracts maturing on Nov. 1 and April 1, 2014 during the Friday session, injecting an additional $1.08 billion worth of swaps in the market. Latin American FX prices at 2145 GMT: Currencies daily % YTD % change change Latest Brazil real 2.3945 -2.40 -14.80 Mexico peso 12.9100 -0.66 -0.35 Chile peso 512.6000 -0.90 -6.61 Colombia peso 1912.0000 -0.58 -7.64 Peru sol 2.7960 0.00 -8.76 Argentina peso 5.5900 -0.18 -12.12 Argentina peso 8.9000 0.56 -23.82 - Link this
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