Real halts 6-day slide as Brazil steps up currency intervention
RIO DE JANEIRO
RIO DE JANEIRO Aug 20 (Reuters) - Brazil's real gained for the first time in seven sessions on Tuesday after policymakers raised their rhetoric against currency speculators and the central bank stepped up intervention on the foreign exchange market.
The real opened higher following overnight comments by Finance Minister Guido Mantega and central bank chief Alexandre Tombini, both of whom advised investors to avoid strong bets against the real.
Their comments, which came on Monday after the real closed at its weakest level since March 2009, suggested they believed the currency had overshot as it plummeted nearly 6 percent during six straight sessions of losses.
Most emerging-market currencies have sold off over the past few days as investors prepare for an expected withdrawal of U.S. stimulus measures. The Brazilian currency has been specially hard-hit, however, as the country's slow-growing economy has fallen out of favor with investors.
After gaining more than 1 percent in the first hour of trading, the real shed some of its gains to rise a more modest 0.5 percent, at 2.4029 per dollar.
Also supporting the currency were two auctions of traditional currency swaps, derivatives that emulate an injection of dollars in the futures market, and a third auction of spot dollars through repurchase agreements.
"The real is gaining because the central bank is providing liquidity to both the spot and the futures market," said Sidnei Nehme, director at NGO brokerage in Sao Paulo. "By intervening in both markets, the central bank is breaking the leg of speculators."
In the first swap auction, the central bank sold 20,000 new contracts maturing on Jan 2. The second auction is designed to simply roll-over expiring maturities.
The central bank has been selling swaps in the futures market to provide investors with protection against a further depreciation of the real. They are part of a government strategy to ease demand for dollars without burning the country's $370 billion in foreign reserves.
Still, many analysts say that strategy has run its course as companies are unwilling to hedge again currency risk at current exchange rate levels. Instead, they say, demand is growing for dollars on the spot market.
In an attempt to satisfy that demand without depleting its reserves, the central bank is also selling up to $4 billion in spot dollars on Tuesday with repurchase dates set to Jan. 2 and April 1. It is the first time in two months that policymakers resort to this type of intervention.