By Diana Kinch
RIO DE JANEIRO--Brazil's real weakened further against the U.S.
dollar late Tuesday after speculative trading attempted to test the
Brazilian central bank's limits on market intervention and as
foreign investors were reported to be abandoning the real amid
lower-growth expectations for Brazil.
The real exited active trading at BRL2.0624 to the dollar, well
below its Monday close of BRL2.0468, according to Tullett Prebon
via FactSet.
Risk aversion continued high among global investors due to
continuing uncertainties over the efficacy of bailout plans for
Spanish banks disclosed at the weekend and after ratings company
Fitch on Monday downgraded the credit ratings of Spain's biggest
banks, Banco Santander SA (STD, SAN.MC) and Banco Bilbao Vizcaya
Argentaria SA (BBVA, BBVA.MC).
However, economists said the real responded more to local
movements Tuesday than to any new global factor as traders
speculated on whether the central bank would again re-enter the
market with a swap auction--after three such interventions so far
this month.
The real failed to strengthen even after central bank President
Alexandre Tombini said in a senate hearing that there is currently
a significant outflow of dollars from the country, which would
normally strengthen the local currency.
Tendencias Consultancy's Bruno Lavieri described the real's
further weakening Tuesday as a "strange movement" after the central
bank's intervention Monday with a dollar-swap auction in an attempt
to prop up the local currency.
For Flavio Serrano of Espirito Santo Investment Bank, the
weakening of the real--which has reached its lowest level in
several weeks--was purely speculative. "The market's testing a
possible intervention of the central bank. It's not clear yet what
the central bank's limit would be."
Dollar-swap auctions allow investors to exchange paper linked to
domestic interest rates for contracts indexed to the U.S. dollar.
The auctions are a tool to smooth volatility in the market when the
real is weakening against the U.S. currency.
Mr. Lavieri noted that the central bank's intervention Monday
was designed to bring liquidity to the futures market where
investor confidence has been undermined by the government's use of
the IOF tax on derivatives transactions. "The central bank
attempted to correct this situation but only 20% of the $2 billion
it offered was taken up by the market; with this low demand for
swaps, it's logical they wouldn't re-enter the market again
today.
"The government meanwhile doesn't seem bothered with the
exchange rate at around BRL2 to the dollar, which boosts
profitability for industry and exporters," Mr. Lavieri noted.
Investor confidence may even becoming eroded in Brazil following
the downward revisions of forecasts for 2012 and 2013 gross
domestic product this week, he said. Central-bank analysts have
revised down estimates for Brazil's 2012 GDP growth to 2.53% from
3.20% a month back.
The expectation that the central bank will reduce interest rates
again--from the current historically low rate of 8.5%--is also
maintaining pressure on the real to weaken, according to Reginaldo
Siaca, manager at Advanced Brokerage in Sao Paulo. "The market is
going to continue testing the central bank, especially after it
failed to sell even half of the swaps it offered yesterday," Mr.
Siaca said.
--Brian Asher contributed to this article.
Write to Diana Kinch at diana.kinch@dowjones.com.