Brazil's central bank to sell $1.5 billion amid currency volatility

Brazil's central bank announced it would offer up to $1.5 billion in an auction on Friday, following weeks of turbulence in the country's currency. The announcement, made on Thursday night, came after the real experienced its fourth consecutive day of losses, making it one of the worst-performing currencies in emerging markets this year. The auction will occur on Friday morning on the spot market.

Alongside concerns about President Luiz Inacio Lula da Silva's fiscal policies and future interest rate trends, the real has also been impacted — alongside Mexico's peso — by the unwinding of carry trades amid a rally in the Japanese yen. The region's high double-digit interest rates previously made it a popular target for this strategy, which involves borrowing in the currency of a low-yielding nation to invest in higher-yielding ones.

According to the central bank, this form of intervention last occurred in December 2021. The prices for the auction will be determined based on the PTAX rate, the official currency fixing rate.

In April, the bank used swaps—a more typical intervention tactic—offering $1 billion in the market. Last month, traders speculated about a potential market intervention when the real fell past 5.7 per dollar, a rare move by the central bank in recent years.

The real has dropped nearly 14 per cent this year, marking it as the worst-performing major currency after the Mexican peso. It has dropped by 2.5 per cent this week alone, trailing only the peso in losses during this period.