Funds and speculators on US futures markets increased their bearish bets against the Brazilian real for the seventh week in a row, data showed on Friday, the same day the currency registered its biggest weekly fall since November.
A $2-billion intervention in the currency swaps market from Brazil's central bank helped pull the real up from a fresh record low, but it still ended the week down 3.4% as traders moved to price in a cut in interest rates later this month.
That brought the central bank's sales of currency swaps contracts in recent weeks to $9.5 billion, a concerted effort to slow or reverse the real's decline which accelerated amid a rapidly deteriorating economic outlook.
The latest Commodity Futures Trading Commission data on Friday showed that funds and speculators on US futures markets are now holding their largest net short real position this year. To go short a financial asset is to effectively bet that it will decline in value.
Funds' net short position as of March 3 grew to 42,858 contracts from 36,987 contracts the week before, CFTC data showed. That is the seventh week in a row of rising net short positions, which are now near last December's record 51,274.
But those figures were for the week to Tuesday, when the real traded as strong as 4.45 per dollar before sliding to as weak as 4.67 per dollar on Friday. Traders said a rate cut at the central bank's next policy meeting on March 17-18 is all but guaranteed.
"FX is a big problem, so now is not the time to cut rates," said a senior trader in Sao Paulo, noting that lower rates will likely put the real under even more downward pressure. After the US Federal Reserve's emergency rate cut this week, Brazil's central bank said it was monitoring financial conditions as coronavirus fears tanked local markets and triggered a wave of downward economic growth forecast revisions.
Economists at Barclays on Friday became the latest to lower their 2020 growth outlook, to 1.7%. The government will lower its forecast next week, but not below 2%, Economy Minister Paulo Guedes said on Thursday.
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