RIO DE JANEIRO, BRAZIL – Funds and speculators on U.S. futures markets amassed their largest bet against the Brazilian real in over three months, data showed on Friday, March 5th, as the currency’s latest slump prompted the first central bank intervention this year.
The latest Commodity Futures Trading Commission data on Friday showed that funds increased their net short position by 5,114 contracts to 21,051 contracts in the week to March 2th, the biggest net short since the week ending Nov. 22 last year.
To go short a financial asset is to effectively bet that it will decline in value.
Rather than rebounding from its 30% drop against the dollar last year, the real has fallen a further 8.7% so far this year.
Its latest slide over the period captured in the latest CFTC data prompted the central bank into six rounds of direct dollar-selling intervention in the spot market between Thursday last week and Tuesday, costing over US$5 billion.
Apart from the Libyan dinar and Sudanese pound, which have both suffered huge one-off devaluations, the real is the worst-performing currency in the world against the dollar this year, Refinitiv data shows.
The Central Bank is widely expected to raise interest rates for the first time since 2015 sooner rather than later, to counter punch inflation and a deteriorating fiscal outlook.
But with the economy possibly shrinking in the first quarter as a devastating second wave of the COVID-19 virus sweeps the country, higher rates could not come at a worse time.
On top of that, rising U.S. bond yields are pulling cash out of emerging market assets, leaving currencies like the real particularly exposed.