Brazil’s real weakens on Greece debt

Brazil’s currency, the real, weakened on Wednesday against the U.S. dollar as rising expectation of a debt default in Greece and growing evidence of a U.S. slowdown prompted a sell-off of assets in high-risk markets.

Efforts to find a way to refinance more than 330 billion euros ($471 billion) of Greek debt stalled as protests and strikes weakened support for budget cuts, privatizations and other austerity measured required by other European countries as a condition of more debt aid. [ID:nLDE75827M]

Manufacturing in New York state, the third-largest economy in the United States, unexpectedly fell in June according to a survey by the U.S. Federal Reserve. [ID:nN9E7GO00T]

Brazil’s real BRBY shed 0.6 percent to 1.590 to the dollar.

“Concern about the impasse in Greek debt negotiations and the U.S. slowdown is causing the real to pull back from its recent strength,” Carlos Kawall, chief economist with Banco Safra in Sao Paulo said in a phone interview.

As the dollar index .DYX rose, the real and other Latin American currencies also adjusted as major global investors reorganized their portfolios to hold more dollars, Kawall said.

The dollar index is a measure of the value of the U.S. currency against the euro, yen and a basket of other main developed-world currencies.

The real’s weakness, though, is likely to be temporary, Kawall said.

With Latin American interest rates higher than those in the U.S. — where the benchmark fed funds rate is near zero — dollar flows from direct investment and current and future export earnings held by Latin American exporters are likely to sweep into the region in search of larger returns.

The declines in the real boost the value of those dollars in Brazil.

“The fundamentals are generally for the dollar to weaken against the real,” Kawall said. “The high rates in Brazil and all the export dollars abroad tend to make any weakening temporary.”

The real also weakened in the futures and non-deliverable forwards market.

The near-date or first dollar future DOLc1, which expires on June 30, rose 0.4 percent to 1.597 reais on the Sao Paulo BM&F exchange.

When the dollar contract rises, it signals weakening expectations for the Brazilian real’s value at the end of June.

The bid quote for the non-deliverable forward, or NDF, maturing in one month BRL1MNDFOR=, weakened 0.4 percent to a bid price of 1.60 per dollar.

NDFs are a common way to bet on changes in nonconvertible currencies such as the real.

NDFs are settled in dollars, meaning investors need not hold or receive physical Brazilian currency to hedge against or speculate on future exchange rates.

Other Latin American currencies also weakened.

Mexico’s peso MXN=MXN=D2 shed 0.4 percent to 11.8356 to the dollar. Chile’s peso CLP=CLP=CL shed 0.2 percent to 467.10 to the dollar

Colombia’s peso CLP= shed 0.3 percent to 1,777.50 per dollar. Peru’s sol PEN= weakened 0.1 percent to 2.759 to the dollar.