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Brazil's US$8 billion intervention no match for impeachment glee
[BRASILIA] A record US$8 billion intervention by Brazil's central bank couldn't keep the real from climbing to the highest level since August amid bets that president Dilma Rousseff will be impeached.
The central bank sold 160,000 foreign-exchange reverse swaps in five different auctions Tuesday, moves that are equivalent to buying dollars in the futures market.
It was the biggest sale on a single day since the contracts, which tend to weaken the real, were sold for the first time in 2005.
The program was re-introduced last month after three years of efforts to support the currency.
The central bank has reversed course as the real climbed 14 per cent this year to 3.4889 per US dollar on Tuesday, leading global gains, on wagers that a change in government will pave the way for reviving an anemic economy.
While a stronger currency have goes hand-in-hand with economic growth and can help suppress inflation, it also threatens to make Brazilian exports less competitive by making them more expensive in dollar terms.
"The central bank is making clear that it does not want to see the currency trading below 3.50 per dollar, and it's using all the artillery available for that," said Jefferson Rugik, a currency trader at brokerage Correparti Corretora de Cambio in Curitiba, Brazil.
"The market is optimistic with the impeachment possibility, and is testing the central bank to see how long it will keep with the reverse swap auctions. We should see more of this fight in the upcoming sessions."
The real advanced 0.1 per cent Tuesday to its strongest level since Aug 20, after declining as much as 2 per cent earlier in the day.
A committee of Brazil's lower house voted late Monday to recommend impeachment, and a vote could reach the floor within a week.