MercoPress. South Atlantic News Agency

Brazil to auction US$ 1 billion forex swaps on Thursday to boost the anemic Real

Thursday’s sale will be the central bank’s sixth intervention in the swaps market in recent weeks, as forecasts have pushed the real as low as 4.56 per dollar.

Brazil’s central bank on Thursday will auction up to US$ 1 billion foreign exchange swaps contracts, it said on Wednesday, the latest FX market intervention in the face of the real’s 12% slide this year to a series of record lows against the dollar.

Thursday’s sale will be the central bank’s sixth intervention in the swaps market in recent weeks, as a wave of downward revisions to this year’s economic growth and interest rate outlook has pushed the real as low as 4.56 per dollar.

On Wednesday the real led a slide among Latin American currencies after an emergency interest rate cut from the U.S. Federal Reserve spurred expectations of more monetary easing in the region. The real slumped 1.3% to 4.5743 against the dollar touching a fresh all-time low, while a rebounding greenback added to the currency's woes.

An emergency rate cut by the Fed on Tuesday to combat the economic impact from the fast-spreading coronavirus stoked fears that the extent of the fallout might be worse than anticipated and that regional central banks might follow suit.

“The Fed took center stage yesterday, offering the markets an unscripted 50bp cut. The reaction probably did not go as well as planned, as equities tanked in the aftermath,” said Mark McCormick, global head of FX strategy at TD Securities.

“That said, the Fed's move has kick-started a new wave of easing.” Speculation is rife that Brazil's central bank will cut interest rates by 25 basis points to a new low of 4%.

Data showed growth in Brazil's economy slowed last year with momentum pointing to a weak 2020, while a separate survey showed the country's dominant services sector expanded at its slowest pace in eight months in February.