Aussie overvalued, Brazil won’t let real rise, O’Neill rays

April 18, 2013

Yoshiaki Nohara & Masaaki Iwamoto – Bloomberg, 04/18/0213

Australia’s currency is overvalued and Brasil’s weak economy means it won’t allow the real to appreciate, according to Goldman Sachs Asset Management Chairman Jim O’Neill.

“The currency I find the most interesting is the Australian dollar,” O’Neill, 56, said at a Goldman Sachs seminar in Tokyo today. “The Australian dollar is significantly overvalued.”

O’Neil said it is “easy to dislike every major currency.”Read more…

Behind the curve

April 18, 2013

The Economist, 04/20/2013

A CENTRAL bank knows it has lost control of inflation expectations when price rises become the subject of running gags. In Brazil the jokes feature tomatoes, which have suddenly become very pricey following floods, droughts and a big increase in freight costs. Social-media sites buzz with cartoons of bank robbers making off with crates of tomatoes and lottery winners bathing in purée. Even organised crime is diversifying into fruit: customs officers say that Paraguayan smugglers have added Argentine tomatoes to their Brazil-bound trade in drugs, cigarettes and knock-off electronics.

Official figures published on April 10th show that Brazil’s inflation problem goes well beyond salad. Prices rose by 6.6% during the past year, breaching the two-point tolerance band around the Central Bank’s 4.5% target. The price of more than two-thirds of the items used to calculate inflation rose in the past month. Now the mockery seems to have spurred the bank to act. On April 17th it raised the base interest-rate by 0.25 points, to 7.5%. Market watchers expect rates to hit 8.5% by the year’s end.

The belated rise comes just as it has sunk in that Brazil’s economy is failing to regain momentum after stalling last year. Fewer new jobs are being created. Industrial production and an economic-activity index widely seen as a leading indicator of GDP growth both fell in February after rising in January. Core retail sales fell for the first time in almost a decade, a particularly worrying sign given that only domestic consumption kept Brazil out of recession in 2012.

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Brazil yields to traders pouncing on gains: currencies

March 14, 2013

Joseph Ciolli & Ye Xie – Bloomberg, 03/14/2013

Efforts by Brazil to tame inflation are providing foreign-exchange traders with the biggest returns in the world by purchasing reais with funds borrowed in dollars.

Investing in real forward contracts funded by the greenback has gained 5.3 percent this year, the most of any of the 44 other currencies tracked by Bloomberg. Wagers that Brazil’s currency will rise outpaced those expecting a decline by an average of $5.6 billion this year, data from the Sao Paulo-based BM&F exchange and compiled by Bloomberg show. As recently as September there were net bets against the real.

Finance Minister Guido Mantega, who popularized the term “currency war” in 2010, told Bloomberg News last month he’s abandoning the strategy that drove the real down 19 percent in two years as the government shifts its focus to containing inflation. The central bank signaled on March 6 that it’s ready to raise interest rates from a record low 7.25 percent after dropping a pledge to hold borrowing costs steady for what it had called “a prolonged period of time.”

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Brazil seeks stronger real to boost investment -govt sources

January 29, 2013

Luciana Otoni – Reuters, 01/29/2013

Brazilian policymakers have allowed the real to strengthen past the 2-per-dollar mark as part of a strategy to cheapen imported capital goods and boost much-needed investment in industry, a source at the Finance Ministry said on Tuesday.

A second source on President Dilma Rousseff’s economic team stressed that the government will not allow the currency to appreciate too rapidly against the dollar nor to return to levels seen early last year, when the real at 1.7 per dollar posed a threat to Brazilian exporters.

Both sources spoke on condition of anonymity.

The Finance Ministry source downplayed the impact of the strengthening currency on inflation.

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Brazil real rises most among world currencies on intervention

December 26, 2012

Ney Hayashi, Patricia Lara – Bloomberg, 12/26/2012

Brazil’s real rallied the most in the world as the central bank intervened to stem the currency’s drop and contain inflation in Latin America’s biggest economy.

The real advanced to a six-week high as the central bank sold $1.8 billion of currency swaps at two auctions and agreed to lend as much as $2 billion in foreign-exchange credit lines. Swap rates fell as speculation eased that policy makers will boost the target lending rate, known as the Selic, to cap consumer prices.

The real jumped 1.2 percent to 2.0557 per U.S. dollar at 4:22 p.m. in Sao Paulo, the strongest on a closing basis since Nov. 12. The gain was the biggest among all of the world’s currencies tracked by Bloomberg. The real pared its drop in 2012 to 9 percent after falling on Nov. 30 to a three-year low of 2.1360. Swap rates on the contract due in January 2014 fell three basis points, or 0.03 percentage point, to 7.14 percent.

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Brazil swap rates drop on Rousseff comment; real little changed

December 12, 2012

Blake Schmidt – Bloomberg, 12/12/12

Brazil’s swap rates fell for the first time in four days as comments from President Dilma Rousseff encouraged speculation that policy makers will keep borrowing costs at record lows through the first half of 2013.

Interest rates are on track to converge with international levels, Rousseff said in a meeting with business leaders in Paris, adding that Brazil needs to reduce the cost of capital.

Swap rates on the contract due in January 2016 decreased six basis points, or 0.06 percentage point, to 8.16 percent at 1:29 p.m. in Sao Paulo. The real was little changed at 2.0805 after closing on Dec. 7 at 2.0751, the strongest since Nov. 14.

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Brazil’s real steady in holiday – muted trading

November 16, 2012

Matthew Cowley – The Wall Street Journal, 11/16/2012

Brazil’s real opened stable on Friday morning, amid light trading volumes with many investors away due to holidays.

Global markets were also in something of a holding pattern as investors weighed up the feasibility of the radical monetary easing policy advocated by Japan’s main opposition leader, Shinzo Abe. After driving the dollar up on Thursday, there was a reevaluation underway on Friday.

Mr. Abe said Thursday that the Bank of Japan should employ “unlimited easing” to achieve a 2% to 3% inflation target. He also said the BOJ should look to cut the rate it pays on deposits from commercial banks that it holds, and raised the prospect of negative rates, effectively a fee, on such deposits.

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EMERGING MARKETS-Brazil real slips on intervention

September 13, 2012

Anna Irrera – Reuters, 9/13/2012

The Brazilian real weakened on Wednesday after the country’s central bank intervened to halt four sessions of gains that drove the currency near an informal floor of 2 reais per dollar. The bank sold $1.37 billion in reverse currency swaps, derivatives contracts that mimic buying dollars in the futures markets, as part of its efforts to curb the real’s gains. Latin American currencies have been spurred to multi-month highs against the dollar in recent sessions, helped by expectations that the European Central Bank and the U.S. Federal Reserve would deploy more monetary stimulus. Monetary easing in major economies tends to push down interest rates in those countries and boost the appeal of higher yielding emerging market assets to foreign investors.

Brazil’s central bank has been one of the most aggressive banks in trying to fight the currency appreciation caused by such foreign flows as it seeks to support local manufacturers, who face cheaper imports when the real gains. “The bank is showing through its auction what we already knew, which is that we no longer have a floating currency,” said Joao Medeiros, a partner at Pioneer Corretora de Cambio Ltda, a brokerage firm in Sao Paulo. “The market is managed by the central bank.” The real slipped 0.5 percent to bid at 2.0255 per dollar at the local market close.

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Brazil’s Real Opens Slightly Stronger Against Dollar

August 14, 2012

Paul Kiernan – Wall Street Journal, 8/14/2012

SAO PAULO–Brazil’s real opened a touch stronger against the dollar Tuesday as signs of economic resilience emerged from Germany and France and U.S. retail sales surpassed market expectations.

At about 8:50 a.m. EDT, Brazil’s currency traded slightly stronger at BRL2.0219 to the dollar, according to Tullett Prebon via FactSet, compared with BRL2.0223 at Monday’s close.

The change came in line with modest gains in European and Asian equity markets and stock futures in the U.S., where the Commerce Department reported an 0.8% increase in retail and food sales during July.

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Brazil’s real goes from best to worst

May 18, 2012

Kenneth Rapoza – Forbes, 05/18/2012

Brazil’s currency, the real, has gone from one of the best performing foreign currencies against the U.S. dollar, to the worst in a matter of three months. The real was as strong as R$1.65 in late February only to fall below R$2 to the dollar last week.  It is currently trading around R$2.03 in the spot market on Friday.

Finance Minister Guido Mantega said the currency at these levels, near two to one, are better for the Brazilian economy, especially exporters who have to compete with lower cost rivals in Argentina and China. At the corporate level, the bouncy BRL makes it harder for companies to know where to hedge their bets on the forex. Is it wiser to assume the average BRL is R$1.95 or R$2.20 this quarter? Making those positions becomes costly and could be devastating if the bets are wrong.

In 2008 and 2009, two major Brazilian companies — Sadia and Aracruz — folded because of a failed forex hedging strategy.

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