Brazilian Real Extends Second Weekly Decline Amid Fiscal Woes

The real fell for a second straight week as Brazil’s fiscal picture deteriorates further with no relief in sight.

The currency retreated this week after posting a best-in-the-world rally this year. News that the government will seek to ease its budget targets added to an overall mood of risk-aversion globally as the specter of higher U.S. interest rates saps demand for assets in emerging markets and commodity prices erase recent gains.

"Emerging-market currencies are suffering with the Fed, with risks of an earlier hike, while commodities are down," said Georgette Boele, an ABN Amro Group NV strategist in Amsterdam. "Brazilian fundamentals and domestic politics are also pushing the real lower after an amazing recovery in recent weeks."

The real declined 1.5 percent this week, and was up 0.2 percent on Thursday to 3.6786 per dollar. It gained 7.8 percent this year, still the best among the world’s 16 most-traded currencies. Brazilian markets are closed Friday for the Easter holiday.

Finance Minister Nelson Barbosa will ask Congress to lower the fiscal target this year, as the longest recession in a century weighs on tax collection and undermines support for President Dilma Rousseff as she fights off efforts to impeach her. Traders have pushed down the value of Brazilian assets over the past year as Rousseff failed to prevent further credit downgrades. Standard & Poor’s cut the nation to junk in September, followed by Fitch Ratings and Moody’s Investors Service.

The prospect of higher U.S. interest rates is also returning to the spotlight as regional Federal Reserve presidents indicate support for an increase as soon as April. The more hawkish tone from U.S. officials is boosting a surge in the greenback that’s hurting the mostly dollar-denominated commodity market. The S&P GSCI Commodity index dropped 1.3 percent on Thursday after falling 2.4 percent on Wednesday. Commodities account for about a third of Brazil’s exports.

Swap rates on the contract maturing in January 2017, a gauge of expectations on interest-rate moves, rose 0.11 percent to 13.83 percent.

--With assistance from Carla Simoes and Filipe Pacheco To contact the reporter on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Jessica Brice

By: Paula Sambo

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