Brazil, Peru step in to check FX plunge

RIO DE JANEIRO: Brazil's real suffered some of its biggest losses since the 2009 world recession and Peru's sol backed away from three-month lows as the countries' central banks moved to bolster their currencies in the face of deteriorating perspectives for world growth.

In the face of a nearly 5 percent plunge in the real, Brazil's central bank sold $2.75 billion in currency swaps, intervening in the futures market to support the currency.

This reversed a tactic used as recently as August to use sell swaps to prevent the real from strengthening. After the swap auction, the currency rebounded, eventually reversing losses to rise more than 1 percent. At 2:35 p.m. (1735 GMT) the real had weakened again, declining 1.21 percent to 1.8810 to the dollar.

"The market got the feeling that the the central bank wants to put a range on the real," said Moacir Marcos Junior a currency trader at Interbolsa, a Sao Paulo brokerage. "It's like the bank saying, 'look, 1.60 to the dollar, I don't want, but I don't want 1.90 either and I won't let that happen.'"

Thursday's declines bring the Brazilian real's losses this month to more than 15 percent, turning what was a nearly 8 percent year-to-date gain in July to 1.52, a 12-year high, into a more than 11 percent loss.

In Peru, after the sol fell more than 1 percent to a three-month low 2.7910, the central bank sold 600 million soles ($216.2 million) of readjustable certificates of deposit, or CDRs.

In the operation, local banks trade soles with the central bank for dollar-denominated bonds a trade the mimics the sale of dollars and puts pressure on the peso to gain. The sol rebounded to 2.7750, trimming losses to 0.61 percent

The d declines on Thursday came on increasing signs of slowdown in the US, Europe and China -- economies responsible for 60 percent of world output. That outlook caused the price of oil, coffee, copper, soybeans and other commodities, which form the bulk of Latin American exports, to fall too.

Adding to the gloom, a decision by the US Federal Reserve late Wednesday to launch "Operation Twist" -- an attempt to cut long-term borrowing rates by shifting Fed holdings of US Treasury debt into longer-term bonds -- was seen as too weak to boost the sluggish US economy.

In Greece, protesters staged a 24-hour strike against planned austerity measures. The action raised doubts about passage of a plan to stave off a Greek debt default that could hobble international banks and cut-off credit and growth world-wide.

"We are staring at a possible new global recession and that's pushing investors out of Latin American and other commodities-based currencies and into the dollar," Luciano Rostagno, chief strategist at CM Capital Markets in Sao Paulo. "We are practically in a one-way rush out of the region."

In times of economic stress investors frequently sell assets in currencies considered high risk, such as Brazil's real and Mexico's peso, and buy assets priced in less-risky dollars, the world's most "liquid" or widely-negotiated currency.

Mexico's peso weakened 1.24 percent to 13.8435. Earlier it fell 1.92 percent to 1.9400, its weakest since April 30, 2009.

Thursday's declines bring the Brazilian real's losses this month to more than 15 percent, turning what was a nearly 8 percent year-to-date gain in July into a more than 11 percent loss.

Concerns about world growth and a European sovereign default have compounded concern about rising Brazilian inflation in the wake of the surprise Aug. 31 central bank decision to cut interest rates a half a percentage point to 12 percent, Rostagno said.

If the Mexican peso weakens beyond 14.0200 to the dollar, it could fall to the 15.59 range, levels last seen at the height of the world recession in March 2009, said Win Thin, an emerging market currency strategist at Brown Brothers Harriman in New York.

"Emerging markets are getting killed and Mexico is going to get killed also," he said.

If world growth problems persist, the peso could be one of Latin America's biggest losers, he added. Mexico gets about 80 percent of export earnings from the United States.

Chile, the major regional economy most dependent on a single commodity, also saw its currency plunge. The Chilean peso weakened 3.91 percent to 520.80 to the dollar after falling as much as 5.06 percent to 527.20, its weakest level since July 21, 2010.

The world's largest copper producer earned more than half of export earnings from the base metal, an important component in electrical equipment and electronic goods.

Copper which was already trading at its lowest levels since November after four days of losses plunged for a fifth day, losing 7.71 percent to 7,658.00 a tonne in London, its lowest in more than a year.

The Reuters Jefferies commodities index, a measure of 18 key Latin American energy and agricultural commodities such as oil and soybeans, fell 4.55 percent to 306.82, its lowest level since Dec. 1.

Colombia, a key producer of oil and coffee and a growing producer of coal, saw its peso fall 2.19 percent to 1,916.05 to the dollar.

Copyright Reuters, 2011