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UPDATE 2-Brazil currency ends flat as central bank acts, Fed fears ease
July 31, 2013 / 4:50 PM / 4 years ago

UPDATE 2-Brazil currency ends flat as central bank acts, Fed fears ease

* Brazil central bank intervenes 3 times to support real

* Fed offers no hint of imminent stimulus tapering

* Real falls to lowest in over 4 years but then erases losses

By Walter Brandimarte and Bruno Federowski

RIO DE JANEIRO, July 31 (Reuters) - Brazil’s currency ended little changed on Wednesday after heavy central bank intervention and a U.S. Federal Reserve decision to continue its bond-buying program propped up the real after it fell to the lowest in more than 4 years.

The Brazilian central bank intervened three times in the market during the morning as it fought to stop the real from weakening past the psychologically relevant mark of 2.3 per dollar - avoiding an additional currency depreciation that could add to inflation.

The interventions came right after the real slumped to as much as 2.3022 per dollar, its weakest level since April 1, 2009. The slide was magnified by investors trying to influence an official month-end exchange rate known as PTAX, which is reference for a broad range of contracts including foreign loans.

At the end of the day, the real closed 0.08 percent weaker at 2.2809 per greenback.

“The central bank wants to keep the exchange rate between 2.2 and 2.3 per dollar in order to avoid a very undesirable inflation pressure in the next few months,” said Eduardo Velho, chief economist at INVX Global brokerage in Sao Paulo. “It looks like the central bank will fight hard to keep the currency at that level. The question is whether it will succeed. I believe it can win in the short term.”

In two separate auctions, the central bank sold a total of 45,300 traditional currency swaps, derivative contracts that emulate an injection of dollars in the futures market.

However, it found no demand for the swaps offered at a third auction, leading some analysts to conclude that the operations served to provide enough liquidity to the foreign exchange market for now.

The central bank has been forced to provide dollar liquidity as investors anticipate a slowdown in the pace of U.S. bond purchases by the Fed. Part of the dollars the Fed has injected in the U.S. economy has been flowing to emerging markets during the past few years.

Speculation that the Fed would hint at reducing its stimulus program increased after data showed the U.S. economy unexpectedly accelerated in the second quarter.

The data showed U.S. gross domestic product expanded at a 1.7 percent annual rate in the second quarter, above the 1 percent rate forecast by economists and up from the first quarter’s downwardly revised 1.1 percent expansion pace.

The U.S. economic picture was also brightened by a report showing the U.S. private sector added 20,000 jobs in July.

But at the end of its two-day meeting, the Fed said the economy is still in need of support and that it will keep buying $85 billion in mortgage and Treasury securities per month.

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