Brazil real has weakest month in 4 years

Credit: REUTERS/Pilar Olivares

By Jamie McGeever

BRASILIA, Aug 30 (Reuters) - Brazil's real lost almost 8% in August, making it one of the worst-performing currencies against the dollar, behind Argentina's peso, and marking its weakest month in four years.

The slide, exacerbated by market positioning, aggressive bets on lower Brazilian interest rates and a financial crisis in neighboring Argentina, took the real past 4.00 per dollar and prompted the central bank to intervene in the market.

August was a tough month for emerging assets as the U.S.-China trade spat and U.S. recession fears escalated. Figures from the Washington-based Institute of International Finance show the highest emerging market outflows since Donald Trump's U.S. presidential election win in November 2016.

According to Refinitiv data, the real is on course for a 7.7% decline against the dollar this month, its biggest monthly fall since September 2015, when it lost 8.4% of its value.

"This month was very bad for emerging markets. We had Argentina crisis, escalation of the U.S.-China trade war, and a decent deleveraging of Brazil risk," said the head of Treasury trading at a bank in Sao Paulo, who requested not to be named.

"However, September may be a risk on month for Brazil," he added.

The real started August around 3.80 per dollar BRBY, but weakened to an 11-month low of almost 4.20 this week. That took it to within touching distance of its record low around 4.25 per dollar from September, 2015, when Brazil was in the midst of one of its deepest-ever recessions.

The central bank sold dollars on the spot market for the first time in over a decade, a move many observers said was a direct response to the real's fall through 4.00/$ and its failure to rebound as the all-time low around 4.25/$ approached.

Market positioning also contributed to the slide. As August started, funds trading U.S. futures markets had already unwound their large short position in the real, Commodity Futures Trading Commission data showed, meaning they were more likely to sell again if they saw fit.

To be "short" an asset is to bet that its value will fall, and to be "long" is to bet it will rise in value.

Brazil real - monthly change

(Reporting by Jamie McGeever; Editing by Dan Grebler)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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