(Bloomberg) -- Brazil’s real, the world’s worst-performing currency this year, plunged to an all-time low beyond 4.60 per dollar on Thursday after the central bank opened the door for more interest rate cuts.
The currency fell 0.6% to 4.6064 per dollar as traders increased bets policy makers will reduce borrowing costs following the Federal Reserve’s emergency rate cut.
Brazil’s central bank said in a statement on Tuesday that it is monitoring the impact of the coronavirus outbreak on financial markets and the wider economy. Markets interpreted the statement as a signal for further rate cuts, sending swap rates and the currency lower.
Brazil’s local swap curve is pricing in chances of a 50 basis-point rate cut at the central bank’s next meeting on March 18, compared with near zero in the prior week. Traders had played down chances of further rate reductions after the central bank suggested in February the easing cycle was over, but resumed bets after the Fed’s bold move.
The real is down 12.5% this year, the worst start since 1999. It’s underperforming peers due to its diminished carry appeal, given that local rates have dropped to a record. Weak growth numbers also weighed on the currency, as well as positioning, since it’s used as a hedge for long positions in stocks and rates.