SAO PAULO--Brazil's real on Wednesday traded at the weakest
level against the greenback in more than six months, but failed to
break past BRL2.1 per dollar as traders remained wary of central
bank intervention.
After exiting active trading on Tuesday at BRL2.0797, the real
weakened to as much as BRL2.0971 in Wednesday trading on concern
about Europe after euro-zone minister failed to reach a deal on an
aid package for Greece.
The breakdown in talks means Greece has to wait longer to get a
long-withheld chunk of aid of at least EUR31.5 billion, with
Eurogroup president Jean-Claude Juncker saying on his way out of
the meeting he doesn't know when Greece will get the next
installment.
In Brazil, traders almost pushed the real past BRL2.1 per
dollar, bolstered by comments in a Valor Economico interview of
President Dilma Rousseff Tuesday, in which the president said she
didn't want an "overvalued" Brazil currency.
The real has been trading between BRL2 and BRL2.1 per dollar for
the past six months, due in large part to the central bank holding
auctions whenever the real approached those limits. But with the
central bank quiet in recent weeks, some traders saw the chance to
break past the BRL2.1 mark and tested the bank's willingness to
intervene.
However, a central bank statement shortly before 11:00 a.m.
local time, saying that the bank would change the way it intervenes
in the currency market, stopped those traders short.
"The bank alerted that it would change the way it carries out
auctions," said Reginaldo Galhardo, a currency trader at Treviso
brokerage in Sao Paulo. For a market that had seen the central bank
on the sidelines, "this said to traders 'You think we're not
watching, but we see what's going on.' Some in the market backed
off thinking that the statement was an actual auction
announcement."
The central bank said in the statement that it would accept bids
during auctions via a new messaging system, part of its upgrade of
communications with investors.
Traders also noted that the central bank said the new system
would also apply to spot market intervention, reminding traders
that it could also resume interventions in the spot market after
focusing mainly on futures markets in recent months, Mr. Galhardo
said.
The view that the government would allow the currency to weaken
further wasn't unanimous, however, with Barclays writing that "the
ceiling is closer to 2.10 than it is to 2.15."
"We expect the BCB not to sanction such a change in range in the
last few days of November," Barclays economist Guilherme Loureiro
wrote. "There are US$3.14 billion in derivatives coming due at the
end of the month (BCB is long USD) and we believe a new (higher)
trading range should only be confirmed if it decides to roll that
exposure."
Likewise, Bank of America Merrill Lynch economists wrote that
"there is no evidence the central bank has changed its intervention
policy," and attributing the lack of recent central bank auction to
lower volatility than in previous months before, noting that "a
much weaker currency will clearly add noise (and pressures) to an
inflation rate that is already inching higher."
Still, some investors say that the real's record strength
against the dollar in recent years -- the currency peaked at
BRL1.53 per dollar last year -- is a thing of the past.
Luis Stuhlberger, co-founder and chief investment officer of one
of Brazil's largest asset managers, Credit Suisse Hedging-Griffo,
said Tuesday that current weaker levels for the Brazilian real are
likely here to stay.
Given the reduction of short-term interest rates in Brazil, the
dollar likely won't fall below BRL2 again "in our lifetime," Mr.
Stuhlberger said.
Write to Paulo Winterstein at paulo.winterstein@dowjones.com