After weakening on an end to easy money, the Brazilian real exchange traded fund is advancing on speculation that the central bank will step in to stem the depreciating currency.
The WisdomTree Brazilian Real Fund (NYSEArca: BZF) rose 1.4% Monday. BZF has declined 3.9% over the past month and is down 9.6% year-to-date.
The real dipped 2.4% last week after the Fed announced its $10 tapering plans, Bloomberg reports.
“It would be natural that the dollar adjusts in Brazil,” Jose Carlos Amado, a currency trader at Renascenca Dtvm, said in the article. “Knowing that the central bank is paying attention, the market could back down a bit.”
The Brazilian central bank hiked its benchmark Selic rate to 10% from 7.25% this year, reports Erin McCarthy for the Wall Street Journal. Analysts expect the central bank to raise it to at least 10.5% in 2014.
In the fourth quarter, the currency has dropped 6.6%, the most among 16 major U.S. dollar counterparts, on fears that Brazil’s fiscal problems could result in a credit rating cut and on speculation that Fed tightening would reduce demand for Brazilian assets. [Tapering Could Slam These Two EM Currencies]