BCB steps up intervention, keen to reduce volatility in BRL

The Brazilain real soared 10% against the dollar Q1 2016 as markets bet that attempts to impeach President Dilma Rousseff would lead to a new government that could help boost business confidence and curb a record fiscal deficit. One-month implied volatility for the real, the most volatile in emerging markets, rose 0.8% on Tuesday to 28.07%, a six month high.

In a surprise move, the central bank stepped up efforts to weaken the currency. The central bank sold 160,000 foreign-exchange reverse swaps in five different auctions Tuesday. It was the biggest sale on a single day since the introduction of the contracts in 2015.

However, a record US$8 billion intervention by Brazil's central bank couldn't keep the real from climbing to the highest level since August. The real advanced 0.1 per cent Tuesday to its strongest level since Aug 20, after declining as much as 2 per cent earlier in the day. USD/BRL closed Tuesday's trade at 3.4887 and the pair is currently trading at 3.4907.

“The intensification in the central bank intervention is strong,” Pablo Spyer, operational director at Mirae Asset Wealth Management, said from Sao Paulo. “The impression is that the central bank just wants to reduce volatility in the currency, which is very high.”