Brazil real falls on Powell threat, tight liquidity

São Paulo, 22 – The Brazilian real ended Wednesday at R$ 2.882 to the dollar, which rose 0.45%. This was off of a R$ 2.883 minimum for the local currency, a R$ 2.859 maximum and a R$ 2.869 close on Tuesday.
The real was hit on Wednesday by U.S. secretary of state Colin Powell implying that options other than diplomacy were being considered in relation to Iran´s nuclear program.
Following this oil prices rose by over 3%.
The real also weakened on tighter forex market liquidity, on a day otherwise replete with good domestic news (e.g. lower-than-expected IPCA-15 inflation).

The stronger real is encouraging purchases of cheaper dollars, while holding back exporters, who are waiting for another exchange rate before acting in any large concert. As well as being few, the lots coming from exporters have been small.
Liquidity has also been hit by the bank workers strike, which means the large institutions have only been able to operate at half steam.
Federal bank Banco do Brasil is almost completely off of the market, according to experts, while Bradesco, ABN and Unibanco have been considerably limited.
Figures from the Central Bank show that in August to the 17th the banks reduced short dollar positions to $397 million from $505 million. Net capital inflows to September 17th, meanwhile, were of $96 million, boosted by $1.77 billion from the trade segment. The financial segment saw a $1.674 billion net outflow.
At any rate, further corporate issues are expecting in Brazil. The country´s risk spread ended the day 2 basis points lower at 461 bps.
Meanwhile, the Central Bank announced that Brazil had reopened its 2012 Eurobond to sell another €250 million.
At the Brazilian Mercantile and Futures Exchange (BM&F) on Wednesday dollar futures rose and trading volume totaled $4.93 billion.
Elsewhere at the BM&F, the interest rate futures contract maturing Jan 1/05 (the most liquid) ended at 16.73% from 16.69%, Apr 1/05 at 17.25% from 17.17% and Jul 1/05 at 17.53% from 17.49%.
Source: Agencia Estado

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