SAO PAULO/MEXICO CITY: The Brazilian real strengthened on Wednesday following heavy central bank intervention in the currency market, while Mexico's peso was little changed as worries over US budget talks weighed.
Brazil's central bank intervened three times in the foreign exchange market on Wednesday in an effort to limit recent weakness in the real, which has dropped nearly 9.0 percent against the US dollar this year.
Early on Wednesday, the bank conducted an auction to sell up to $2 billion on the spot market with repurchase agreements, which aims to provide liquidity to the foreign exchange market at year-end.
The move was followed by two currency swap auctions, both offering 40,000 contracts with a maturity of Feb. 1, 2013. The bank sold a combined total of 37,000 contracts, which are derivatives that emulate the selling of dollars in the futures markets.
"The central bank wants the dollar around 2.05 reais, considering the market was very calm and there was no reason for it to step in," said Reginaldo Siaca, head of foreign exchange at Advanced Corretora in Sao Paulo. "With the auctions, it is signaling the band it is comfortable with for the end of the year."
The real strengthened sharply after the interventions, gaining 1.39 percent to close at 2.05 per US dollar.
Brazil's central bank had last carried out a swap auction on Dec. 3, when the real closed at 2.119 per dollar.
"The central bank saw that a dollar close to 2.10 reais would be harmful for inflation," said João Medeiros, head of currencies at Pioneer Corretora in Sao Paulo.
The Mexican peso edged down 0.21 percent to 13.0120 per dollar as anxieties remained over unresolved austerity issues facing the United States, Mexico's biggest trading partner.
"Mexico is really the barometer for the reality of the market over the holidays, which is thin (trading) and growing concerns over the fiscal cliff," said RBS economist Flavia Cattan-Naslausky.
She pointed to US President Barack Obama's decision to return early to Washington from vacation to tackle the looming package of tax hikes and spending cuts, along with an upcoming debt ceiling debate, as fueling investor concern.
The US Treasury on Wednesday announced the first of a series of measures that should push back the day when the government will exceed its legal borrowing authority as imposed by Congress by around two months.
Without any action, Treasury said the government is set to reach its $16.4 trillion debt ceiling on Dec. 31.
Still, the Mexican peso has performed well this year, firming more than 7.0 percent since 2011, and Cattan-Naslausky warned against reading too much into market moves during periods of light trading.
Chile's peso edged up 0.08 percent to 479.10 per US dollar.
Standard & Poor's raised Chile's sovereign credit rating a notch on Wednesday to AA-minus from A-plus, citing the export-dependent economy's resilience to fallout from the global slowdown.
Center>Copyright Reuters, 2012
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