Dollar closes stable even with extra BC auction to contain currency rise in Brazil

The announcement of an extra Central Bank swap auction weighed on dollar prices this Tuesday, but the US currency recovered during the session and closed stable in Brazil, again above 5 reais.

The spot dollar closed the day at 5.0589 reais on sale, stable. At 5:02 pm, on B3, the first maturity dollar futures contract rose 0.08%, to 5.072 reais on sale.

The session began with a firm downward movement of the dollar against the real, with investors reacting to the announcement the day before that the BC would auction an extra 20,000 traditional currency swap contracts, worth 1 billion dollars.

The extra supply of swaps, whose effect is equivalent to the sale of dollars in the futures market, was intended to meet the demand generated by the redemption of the NTN-A3 bond, linked to the exchange rate, scheduled for April 15th.

In reaction, the dollar in cash reached the minimum exchange rate of the day, of 5.0242 reais (-0.68%), at the opening of business, at 9 am.

The NTN-A3 is a public bond indexed to the dollar that has not been traded by the National Treasury for years, but there are still institutions in the Brazilian market that hold the paper in their portfolios.

On April 15, a total of 18.534 billion reais in NTN-A3s that were negotiated in 1997 mature. In current values, the papers are equivalent to around 3.7 billion dollars.

Holders of NTN-A3s in Brazil, over the years, also carried some short positions in dollars to cover exposure to these securities. As the securities will now mature, holders need to close these short positions — which is done by purchasing dollars.

Although the BC indicated that this Tuesday’s swap auction would be to meet this specific demand, avoiding market distortions, some professionals considered that the institution may have used the moment to contain a greater rise in the dollar.

Despite this, during the morning the dollar regained strength against the real, even though abroad the bias towards the US currency was negative. At the auction, which took place between 12:30 pm and 12:40 pm, the BC sold all 20,000 swap contracts offered.

An operator interviewed by Reuters considered that, after the initial effect of the swap auction had passed, the rise in Treasury yields abroad — amid the view that the interest rate cut in the US would be delayed — once again gave some support to the dollar.

At 2:39 pm — after the swap auction – the spot dollar reached a maximum of 5.0629 reais (+0.08%).

At 5:14 pm, the dollar index — which measures the performance of the US currency against a basket of six currencies — fell 0.21%, to 104.780.

In the morning, the BC sold, in regular operations, all 16,000 traditional currency swap contracts offered to roll over June maturities.