Brazil's Real falls as exporters pare sales of U.S. Dollars

Brazil's real fell after exporters held off on selling the U.S. currency.
The real dropped 0.2 percent to 2.0287 per dollar at august 20th in New York after surging 3.3 percent, the biggest gain since October 2002, on Aug. 17. The decline extended the real's losses to 9.2 percent since July 23, when defaults in the U.S. subprime loan market began eroding demand for other risky assets.
The real, which fell as much as 1.8 percent during the afternoon as U.S. stocks dropped, pared losses today after the Dow Jones Industrial Average rebounded. U.S. Treasury yields fell the most since 1987 as investors flocked to the safest assets, indicating concern remains in global financial markets about U.S. sub prime market losses.
``In the face of huge volatility in recent days, market participants here are taking a close look to the performance of the major overseas stock and bond markets,'' said Helio Ozaki, a currency trader with Sao Paulo-based Banco Rendimento SA. ``People in general are skittish of changing dollars in great quantities. Volatility is helping limit dollar supply.''
The Dow Jones Industrial Average rose 0.3 percent, after falling 0.7 percent earlier. Treasuries rose on speculation the expanding credit crunch will lead the Federal Reserve to cut its benchmark inter bank overnight target rate from 5.25 percent next month.
The Fed cut on Aug. 17 the rate at which it makes direct loans to banks by 0.5 percentage point to 5.75 percent in a bid to ease the credit crunch created by the sub prime market losses.
The real weakened in each of the past four weeks as hedge funds and international investors reduced holdings of Brazilian securities traded locally. Holdings of currency and real- denominated assets by non-residents fell about $10 billion in the past four months, according to data by the Sao Paulo Futures and Commodities Exchange.
Rising currency volatility hurts investors in the carry trade because it boosts the risk that gains from interest-rate differentials will be erased by foreign-exchange losses.
A government report showing that Brazil's trade surplus widened last week limited the real's declines. The Development, Trade and Industry said today that the trade surplus rose to $673 million in the week ended Aug. 19, the highest in five weeks.
The real has gained 75 percent since the start of 2003 because of record proceeds from commodities exports and a jump in investment in the country's stock and bond markets. The surges in inflows have allowed the central bank to build up reserves. They swelled to a record $160 billion on Aug. 16.
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