The Brazilian real has soared to a 12-year high against the dollar, reigniting Brazil’s currency war fears and worsening the economic headache for President Dilma Rousseff.
The real traded at a high of 1.5523 versus the US currency on Friday, its strongest level since just after it was first floated in 1999, as investors sought higher-yielding assets following the easing of the Greek debt crisis.
Global equities had their best week for nearly a year while benchmark Treasuries had their worst weekly performance in nearly two years as haven demand for US debt evaporated.
The Brazilian currency was also boosted by the release of figures showing Brazil reported its biggest monthly trade surplus this year in June of $4.43bn – above the median forecast of analysts in a Reuters poll of $4bn – on the back of lower imports.
Brazil’s rapid economic growth and high real interest rates at nearly 6 per cent make its markets a powerful draw for foreign investors starved of investment opportunities in developed markets.
“US interest rates are near zero, UK interest rates are near zero, Japanese rates are near zero and Brazilian rates are 12.25 per cent – I would say that’s the crux of the matter,” said Neil Shearing of Capital Economics in London.
The relentless strengthening of the country’s currency poses a major problem for the administration of Ms Rousseff, which is concerned that it is reducing industrial competitiveness.
Brazil has been a vocal critic of ultra-loose US monetary policy, known as quantitative easing, which it has blamed for pumping liquidity into the global economy.
The US Federal Reserve this week ended its second round of bond-buying, dubbed QE2.
Much of this liquidity, Brazil has argued, found its way into emerging markets, such as those in Latin America, inflating asset prices and forcing governments to implement defensive capital controls.
Source: www.ft.com
The real traded at a high of 1.5523 versus the US currency on Friday, its strongest level since just after it was first floated in 1999, as investors sought higher-yielding assets following the easing of the Greek debt crisis.
Global equities had their best week for nearly a year while benchmark Treasuries had their worst weekly performance in nearly two years as haven demand for US debt evaporated.
The Brazilian currency was also boosted by the release of figures showing Brazil reported its biggest monthly trade surplus this year in June of $4.43bn – above the median forecast of analysts in a Reuters poll of $4bn – on the back of lower imports.
Brazil’s rapid economic growth and high real interest rates at nearly 6 per cent make its markets a powerful draw for foreign investors starved of investment opportunities in developed markets.
“US interest rates are near zero, UK interest rates are near zero, Japanese rates are near zero and Brazilian rates are 12.25 per cent – I would say that’s the crux of the matter,” said Neil Shearing of Capital Economics in London.
The relentless strengthening of the country’s currency poses a major problem for the administration of Ms Rousseff, which is concerned that it is reducing industrial competitiveness.
Brazil has been a vocal critic of ultra-loose US monetary policy, known as quantitative easing, which it has blamed for pumping liquidity into the global economy.
The US Federal Reserve this week ended its second round of bond-buying, dubbed QE2.
Much of this liquidity, Brazil has argued, found its way into emerging markets, such as those in Latin America, inflating asset prices and forcing governments to implement defensive capital controls.
Source: www.ft.com
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