The Brazilian real’s foreign exchange rate weakened slightly in a thin trading session Monday against a backdrop of expectations of continuing market volatility in coming days and weeks stemming from the persistent European economic crisis that hounds the euro.
The real exited regular trading at BRL1.8688 to the US dollar, marginally weaker than its Friday close of BRL1.8625, according to Tullett Prebon via FactSet.
The real remained unaffected by Brazil’s announcement that its trade surplus broadened about 48% in 2011 to $29.79 billion on record exports, due mainly to continued growth in demand for Brazilian commodities in China, which is Brazil’s biggest trade partner, and other Asian nations.
Brazil’s currency had started the day slightly stronger, hovering at about BRL1.8580 after the euro zone’s purchasing managers’ index rose in December to 46.9 from a 28-month low of 46.4 in November. However, that result still indicates that the region’s economy has contracted for the fifth consecutive month with no signs of imminent recovery.
Chinese, Indian and Taiwanese industrial indices advanced. China’s PMI, announced over the weekend, rose to 50.3 in December from 49 in November, indicating expansion of the country’s manufacturing activity, which should favor demand for commodities from Brazil. India’s result at 54.2 also testified to real growth, surpassing the threshold of 50 which is used as the basic growth benchmark.
However, with major players absent from the markets as the U.S. and U.K. financial markets remained closed after the New Year’s Day holiday, there was little liquidity and sentiment started to ebb by late morning as it became apparent markets would continue to be dominated in the near term by the European debt crisis. Both the real and the euro shed their earlier gains against the dollar.
The euro had marked its 10th anniversary Jan. 1 amid warnings by European heads of state that economic turbulence in the area may only just be beginning.
Economists said the real’s lack of firm direction Monday was mainly due to low trading levels. ” Liquidity has been severely reduced, and there were no important indicators to change the real’s course,” said Jankiel Santos of Espirito Santo Investment Bank.
Traders expect volatility to grow in coming days due to a series of economic data to be released in the U.S., Europe and Brazil, including end-of-year 2011 figures which are important for economic forecasts. Additionally, expectations appeared mixed for a short-term bonds sale due to be held by France Thursday.