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Brazilian Real Plunges to Record Low Against Dollar 

Brazilian Real Plunges to Record Low Against Dollar 

(Bloomberg) -- Brazil’s economy minister blamed the real’s slide to an all-time low on the coronavirus outbreak and said the currency could weaken to as much as 5 per dollar if he “messes up.”

Paulo Guedes said the real is weakening largely due to the economic impact of the epidemic, rather than a change in the country’s risk perception. The currency fell to a record intraday low of 4.6655 per dollar on Thursday even after the central bank stepped in three times to support it.

“If I really mess up, it can reach that level” of 5 per dollar, Guedes told journalists. “If I do a lot of things right, it will strengthen.”

Policy makers sold $3 billion in foreign-exchange swaps on Thursday in three separate auctions. The intervention, however, did little to ease pressure on the currency, which is being dragged down as traders increase bets authorities will reduce borrowing costs following the Federal Reserve’s emergency rate cut.

The real has repeatedly hit new lows since the beginning of February. The central bank has already sold $7.5 billion in foreign-exchange swaps, but that didn’t prevent the currency from becoming the world’s worst performer this year, down over 13%.

Brazilian Real Plunges to Record Low Against Dollar 

The central bank said in a statement on Tuesday that it’s monitoring the impact of the coronavirus outbreak on financial markets and the wider economy. Markets interpreted the statement as a signal for further rate cuts, sending swap rates and the currency lower.

Brazil’s local swap curve is fully pricing in a quarter-point rate cut at the central bank’s next meeting on March 18, compared with a near zero possibility the prior week. Traders had played down chances of further rate reductions after the central bank suggested in February the easing cycle was over, but resumed bets after the Fed’s move.

“The real is decoupled from peers due to lower interest rates and carry,” said Carlos Kawall, the Sao Paulo-based director of Institutional Relations at ASA Bank and former Treasury secretary. “The dollar is only going to one side and there is only one seller, the central bank.”

The real is down 13.3% this year, the worst start since 1999. It’s underperforming peers due to its diminished carry appeal, given that local rates have dropped to a record 4.25%. Weak growth numbers also weighed on the currency, as well as positioning, since it’s used as a hedge for long positions in stocks and rates.

--With assistance from Patricia Lara.

To contact the reporters on this story: Aline Oyamada in Sao Paulo at aoyamada3@bloomberg.net;Fabiana Batista in Sao Paulo at fbatista6@bloomberg.net

To contact the editors responsible for this story: Carolina Wilson at cwilson166@bloomberg.net, Philip Sanders, Walter Brandimarte

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