September 13, 2019 / 9:20 PM / a month ago

UPDATE 1-Speculators turn against Brazil's real, hold biggest short since 2014

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By Jamie McGeever

BRASILIA, Sept 13 (Reuters) - Hedge funds and speculators on U.S. futures markets turned aggressively against the Brazilian real in the latest week, building up their largest bet in five years on it falling, figures on Friday showed.

Weekly data from the U.S. Commodity Futures Trading Commission showed that the their net short position as of Tuesday Sept. 10 was 34,732 contracts, some 23,804 contracts more than the previous week.

That marked the largest week-on-week shift against the real since CFTC started trading the currency in 2011.

The figures give further weight to the divergence between local Brazilian and overseas investors’ views on Brazilian financial assets this year, including the real.

Yet the scale of the move and size of positioning might raise some eyebrows given how bullish many big U.S. and European banks, including Morgan Stanley, Deutsche Bank and Citi had become on the real in recent weeks.

“We have turned more positive in Latin American FX, which had sold off the hardest in August. To be precise, we moved the Brazilian real from underweight to overweight,” Citi strategists wrote in a note this week entitled “A Better September.”

The real fell 8% against the dollar in August - its biggest monthly fall in four years - to within sight of its record low of 4.25 per dollar. According to Deutsche, it was the second-worst performing emerging currency only behind Argentina’s peso.

Some of these new short positions, effectively bets that the real will depreciate, will be under water. In the week to Sept. 10, the cut off for the latest CFTC data, the real strengthened around 2% against the dollar.

Reporting by Jamie McGeever; Editing by Rosalba O'Brien and Sandra Maler

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