February 28, 2020 / 8:52 PM / a month ago

UPDATE 1-Brazil real hits new low despite FX intervention, now down 11% this year

(Adds quote, updates prices)

By Jamie McGeever

BRASILIA, Feb 28 (Reuters) - The Brazilian real sank to a new low against the dollar on Friday, taking its losses this year to 11% as the relentless selling overwhelmed the central bank’s third consecutive daily market intervention to ease the pressure.

As growing fears over the coronavirus outbreak slammed markets and investor sentiment around the world, Brazil’s real brushed aside the central bank’s $1 billion sale of FX swaps contracts to fall through 4.51 per dollar for the first time.

Traders said local investors sold the real as a hedge against their exposure to the Brazilian stock market, and local speculators also pushed the currency lower to test the central bank’s resolve.

The real traded as low as 4.5136 per dollar, and by the close of trade in Brazil on Friday it was changing hands at 4.4811 reais per dollar, a record closing low for the local currency.

“The central bank should inject liquidity by selling a decent amount of dollars,” said a senior trader in Sao Paulo. “This would be good for taxpayers and for the country, as the (exchange rate) level is attractive to reduce FX reserves.”

Brazil’s central bank has not sold spot market dollars since November. It dipped into the currency derivatives market on Friday for the third time this week and fifth time this month, selling $1 billion in FX swaps contracts.

But if it had an effect, it was only to slow the decline, not reverse it. Economists note that with 2020 growth forecasts being revised down, in some cases below the politically-sensitive 2% threshold, it might be difficult for the real to bounce back meaningfully even when it does recover.

“The real was underperforming its emerging market peers even before concerns about (coronavirus) intensified in late January,” wrote William Jackson at Capital Economics in a note on Friday.

“We think a lot of this can be explained by Brazil’s widening current account deficit, which will keep the currency under pressure even if virus fears fade,” he said. (Reporting by Jamie McGeever; Editing by David Gregorio and Diane Craft)

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