August 16, 2019 / 8:25 PM / a month ago

Hedge funds, speculators U-turn on bullish Brazilian real bets

BRASILIA, Aug 16 (Reuters) - Hedge funds and speculators on U.S. futures markets have almost completely wound down their bets that the Brazilian real will rise in value, weekly data from the U.S. Commodity Futures Trading Commission showed on Friday.

It was the third biggest positional shift against the real this year, and coincided with the currency weakening beyond 4.00 per dollar for the first time since late May.

In the week to Aug. 13, speculators and funds slashed their net long real position by 8,593 contracts to just 676 contracts from 9,269 the week before, CFTC data showed.

That means funds are now broadly neutral on the real, having held their biggest net long position since February 2018 the week before.

To be long an asset is to effectively bet that it will rise in value and to be short is to bet it will depreciate. Funds have been mostly short the real this year, but recently became more bullish as a landmark pension reform bill was approved.

The escalating U.S.-China trade war, growing fears that the United States is headed for recession and political volatility and a market crash in neighboring Argentina all weighed heavily on the real over the period.

This week, the dollar rose above 4.05 reais, and the Brazilian central bank announced it would tweak the way it manages its currency market operations, most notably by selling dollars on the spot market for the first time in a decade.

This relieved some of the pressure on the real. Economy Minister Paulo Guedes said on Thursday that even if the dollar were to rise to 4.20 reais, Brazil is “prepared”. ($1 = 4.00 reais)

Reporting by Jamie McGeever; editing by Jonathan Oatis

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