Brazilian Real Approaches Highest Since 2008 on Foreign Direct Investment

Brazil’s real rose, approaching its strongest level since August 2008, after foreign direct investment last month exceeded forecasts, signaling increasing demand for assets from Latin America’s biggest economy.

The real advanced 0.4 percent to 1.5621 per dollar at 5 p.m. New York time, from 1.5688 yesterday. The currency touched 1.5611 yesterday, the strongest level on an intraday basis since Aug. 5, 2008. A majority of the 25 emerging-market currencies tracked by Bloomberg gained today against the dollar.

Brazil’s central bank said today the economy received $6.8 billion in overseas investment in March, exceeding a $4.9 billion median forecast of 13 economists surveyed by Bloomberg. Foreign investment in Brazil is on course to reach $60 billion this year, central bank President Alexandre Tombini said in Brasilia today.

“There is a general movement towards more risky assets and this benefits the real,” Vladimir Caramaschi, chief strategist at Credit Agricole Brasil SA in Sao Paulo, said by phone. “It’s also the continuation of the trend towards appreciation. The data on FDI particularly was pretty strong and it suggests that the real could continue on this trend.”

Investors are increasing their demand for higher-yielding assets on speculation the Federal Reserve will decide to keep the target U.S. rate at zero to 0.25 percent at a two-day meeting starting today, said Win Thin, global head of emerging- markets strategy at Brown Brothers Harriman & Co. in New York.

Benchmark Rates

Brazilian policy makers voted 5-2 on April 20 to raise the benchmark Selic rate by a quarter point to 12 percent from 11.75 percent.

“It’s really still sort of a sell the dollar, buy everything else kind of market right now,” Thin said by phone. “It’s a very positive thing” that Brazil’s current account deficit, which the central bank said today widened to $5.7 billion in March, can be covered by incoming foreign direct investment, said Thin. “The current account deficit has to be financed either through FDI or through hot money,” he said.

The central bank said it twice bought dollars in the spot market today, first at 1.5642 and then at 1.5639 each. The purchases are part of an effort by policy makers to curb the currency’s two-year 40 percent rally. They bought $29 billion in dollars in the spot market this year through April 15 and have also purchased the U.S. currency in the forward market and made bets against the real in futures markets in 2011.

Rate Futures

Yields on Brazilian interest-rate futures contracts maturing after January fell after Finance Minister Guido Mantega said the government should use all of its fiscal and monetary weapons to control inflation, which ran at a 29-month high of 6.44 percent through mid-April.

The yield on the contract due in January 2017 fell the most in more than three weeks, tumbling 11 basis points, or 0.11 percentage point, to 12.64 percent.

“We need to use all possible weapons against inflation, be it monetary weapons, be it fiscal weapons,” Mantega said today at an event in Brasilia.

Yields on longer-term contracts are dropping on speculation that the government may take more measures to control inflation in the near-term, said Eduardo Galasini, head of proprietary trading at Banco Banif Primus in Sao Paulo.

Speaking at the same event as Mantega, Tombini said slowing inflation back to the government’s target next year will require a “prolonged” and incisive effort. “This has been determined and will be pursued in a consistent and incisive way,” he said.

Brazil targets annual inflation of 4.5 percent, plus or minus two percentage points. Inflation will surpass the upper limit of the target between July and August, as the central bank uses the range to accommodate price shocks, Carlos Hamilton, the bank’s director of economic policy, said last month.

To contact the reporters on this story: Benjamin Bain in New York at bbain2@bloomberg.net; Josue Leonel in Sao Paulo at jleonel@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.