Having calculated an 11 percent profit shorting Brazil’s real, Societe Generale AG now predicts the world’s worst-performing major currency of the year will slide past 4 per dollar for the first time since 2002.
The real “is arguably the most vulnerable emerging-market currency at this point, facing rapidly worsening fundamentals on top of a fragile external backdrop,” Bernd Berg, a London-based strategist at Societe Generale, wrote in a report on Wednesday. “With the deterioration of the fiscal situation, further rating downgrades now seem unavoidable.”
The French bank, which last week described the chance to sell the currencies of Brazil, Mexico and Chile as a “once-in-a-lifetime” opportunity, extended the target for all its trades shorting Latin American exchange rates. It said the real, which it initiated offloading at 3.1350 against the dollar on July 16, will fall to 4 as bets on higher U.S. interest rates strengthen over the coming weeks.
Brazil’s currency is battling the twin challenges of a deepening economic recession and a dollar buoyed by investors preparing for the Federal Reserve to increase borrowing costs. Economic contractions in the four quarters through March fueled concern that the nation will lose its investment-grade status. Standard & Poor’s cut its rating outlook on Brazil’s sovereign debt to negative on July 28.
The real fell as much as 1.1 percent to 3.4872 a dollar on Tuesday, the weakest since March 2003, as an index tracking Latin American currencies dropped to a record. Bernd raised the target for trade shorting the Chilean peso to 750 from 700, compared with Tuesday’s spot price of 678.07. That for the Mexican peso, which closed at 16.299, was revised to 17.75 from 17.