Dollar interrupts losing streak and closes higher in Brazil.

By Fabricio de Castro

SAO PAULO (Reuters) - After hitting its lowest exchange rate since September of last year the previous day, the dollar closed higher against the real on Tuesday, following on one hand the advance of the US currency abroad and on the other the clash between the government and Congress over the IOF tax in Brazil.

The spot dollar interrupted a three-session losing streak and closed Tuesday up 0,48%, at R$ 5,4610, after hitting its lowest value since September 19 on Monday. However, the currency has accumulated a decline of 11,62% this year.

At 17:04 PM, on the B3 exchange, the dollar for August – currently the most liquid in Brazil – was up 0,48%, at R$ 5,5005.

After fluctuating in negative territory at the opening, the dollar gained strength in Brazil as some agents took advantage of lower prices to buy currency, a movement also supported by caution surrounding the dispute between the government and Congress over the Tax on Financial Operations (IOF).

Brazil's Attorney General's Office (AGU) has decided to file a lawsuit with the Supreme Federal Court (STF) to defend the government decree that raised tax rates, which was overturned by the National Congress.

In the morning, the executive secretary of the Ministry of Finance, Dario Durigan, stated at an event in São Paulo that President Luiz Inácio Lula da Silva's decision to appeal to the Supreme Court is more legal than economic or political. Durigan said that it is normal in a democracy for the president to defend his constitutional prerogatives and affirmed that he and his economic team will be willing to engage in dialogue with Congress.

In the foreign exchange market, in addition to the unease about the possibility of a return to higher tax rates, market participants assessed that the clash between the government and Congress increases uncertainty.

The positive bias toward the dollar intensified late in the morning after the U.S. Labor Department, in its Jolts survey, reported that job openings—a measure of labor demand—rose by 374.000 to 7,769 million on the last day of May. Economists polled by Reuters had forecast 7,30 million jobs.

The numbers reinforced the view that the Federal Reserve may not have as much room to cut interest rates in the short term, which boosted the dollar against several other currencies and Treasury yields.

In this scenario, after registering a minimum exchange rate of R$ 5,4204 (-0,27%) at 9:06 AM, shortly after opening, the spot dollar reached a maximum of R$ 5,4712 (+0,67%) at 15:22 PM.

At 14:17 PM, the dollar index -- which measures the performance of the US currency against a basket of six currencies -- was down 0,04%, at 96,717.