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Brazil Real Fluctuates as Oil Drop Offsets Impeachment Optimism

Brazil Real Fluctuates as Oil Drop Offsets Impeachment Optimism

(Bloomberg) -- Brazil’s real swung between gains and losses as commodities prices reversed earlier advances, offsetting investor optimism over the Senate’s move to resume impeachment proceedings.

The real gained less than 0.1 percent to 3.2639 per dollar at 3:37 p.m. in Sao Paulo after rising as much as 0.8 percent earlier in the day. A gauge of commodities tracked by Bloomberg fell 0.3 percent after previously rising 1.1 percent.

Brazilian assets are among the world’s best performers this year amid speculation that a new administration replacing suspended President Dilma Rousseff would be able to contain a growing budget deficit and help end the country’s worst recession in a century. The real has appreciated 22 percent this year and the Ibovespa stock index is up 30 percent. Analysts surveyed by the central bank expect the economy to grow more than 1 percent next year after contracting by more than 3 percent in both this year and last.

"The crude oil decline has played a role" in the real’s drop, said Ronaldo Guimaraes, portfolio manager at Modal Asset Management Ltda. Crude fell 1.5 percent to $39.46. 

The reversal in commodities prices overshadowed earlier optimism as a congressional committee was scheduled to decide Thursday whether to recommend the opening of a trial based on charges that Rousseff illegally financed deficit spending. In recent congressional votes, Temer has shored up more than a two-thirds majority necessary to approve constitutional amendments, such as the cap on government spending proposed in June.

"There was a lot of hype surrounding Rousseff’s impeachment and Temer’s takeover," said Arnaud Masset, an analyst at Swissquote Bank SA in Gland, Switzerland, who forecasts the real will drop to 3.6 per dollar by year-end. "I wouldn’t be surprised if the real starts reversing gains as Brazil’s outlook is still pretty foggy."

Swap rates on the contract maturing in January 2018, a gauge of expectations for interest-rate moves, climbed 0.04 percentage point to 12.84 percent.

--With assistance from Anna Edgerton Raymond Colitt and Aline Oyamada To contact the reporters on this story: Paula Sambo in Sao Paulo at psambo@bloomberg.net, Vinícius Andrade in São Paulo at vandrade3@bloomberg.net. To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net, Jessica Brice