Brazilian exports will probably benefit from China’s move to relax its currency peg to the dollar, said Luiz Awazu Pereira, director of international affairs at Brazil’s central bank.
“In terms of the appreciation of our exports and the type of exports we have, it’s a favorable situation,” Pereira said today in an interview during “The Sovereign Debt Briefing” in London hosted by Bloomberg Link. “But we obviously need to observe the developments with caution and detail.”
Brazil exported $10.64 billion of goods to China from January through May this year, making the Asian nation its biggest export market with 15 percent of total shipments, according to the Ministry of Development, Industry and Foreign Trade. Soybean, iron-ore and oil products made up for about 82 percent of those exports, according to the ministry’s website.
China’s decision to allow more flexibility in the currency triggered the biggest appreciation in the yuan in half a decade this week, and Morgan Stanley economist Wang Qing said the policy change should damp import costs.
Shares of Vale SA, the world’s biggest iron-ore producer, surged the most in three weeks on June 21 on increasing confidence that demand for exports will rise.
“We need to see how China will manage its new foreign exchange regime,” Pereira said. “China is a great partner for Brazil. Our export sector is largely concentrated in commodities, products linked to expanding demand in China. These movements should be favorable to a certain extent.”
Brazil is also in talks with China to create an agreement allowing the two countries to trade using their own currencies, Pereira said.
Any currency accord should be focused on exports of industrialized products from Brazil, he said. Latin America’s largest economy already trades in local currency with Argentina and is in talks with Uruguay and Peru, Pereira said.
The yuan climbed 0.19 percent to close at 6.7997 per dollar in Shanghai. It has gained 0.39 percent this week and touched 6.7958 on June 21, the strongest level since the central bank unified official and market exchange rates at the end of 1993.
Brazil’s real declined 0.2% to 1.7913 per dollar at 10:45 a.m. New York time from 1.7873 yesterday.