Brazil central bank announces up to $1bn FX swap intervention for Thursday

BRASILIA: Brazil's central bank said on Wednesday it would sell up to $1 billion in currency swaps on Thursday, extending its recent intervention in the foreign exchange market with the real hovering near its all-time low against the US dollar.

The announcement follows two separate interventions by the central bank on Wednesday, one a $1 billion sale of currency swaps and the other a $405 million sale in the spot FX market.

The real is one of the worst-performing currencies in the world this year but rallied more than 2% on Wednesday, its biggest daily gain since late January.

Earlier this week it had slumped to 5.88 per dollar, close to last year's record low around 5.97 per dollar and taking its year-to-date decline to around 11%.

The central bank's intervention on Wednesday, this time taking advantage of a rebound in the currency rather than attempting to slow its decline, suggests a more aggressive approach.

"(This sends) a strong message to anchor financial conditions and causes discomfort to those speculating against the real," said a senior trader in Sao Paulo.

Strategists at Citi said the central bank's action is a key factor behind their near-term bullishness on the real.

"The central bank's recent proactive stance with its interventions ... seems to be here to stay in the near term," they wrote in a note, citing increased nervousness over inflation. "This adds another layer of support for the real."

The central bank is widely expected to raise interest rates next week for the first time in five years, which should also lend some support to the real, analysts say.

So far this year, the central bank has sold $5.58 billion in the spot FX market and $6 billion in the FX swaps market, according to brokerage Commcor DTVM.