Brazil Real Rises as Carry Trade Lures Bulls in Low-Rate World

  • Local rates at 14.25% help make real top currency in 2016
  • Currency extended gains Wednesday as the Fed stays on hold

The real extended gains Wednesday after the U.S. Federal Reserve left its policy rate unchanged for a sixth straight meeting, fueling appetite for Brazil’s world-beating carry trade.

The currency appreciated 1.6 percent to 3.2069 per dollar, a two-week high, Wednesday in Sao Paulo. Buying the real with borrowed dollars in a carry trade has returned 35 percent this year, the most among 42 currencies tracked by Bloomberg.

Investors lured by Brazil’s high benchmark interest rate of 14.25 percent -- more than 28 times the U.S. equivalent -- have turned the real into the world’s best performing currency this year. Brazil’s foreign-exchange rate benefited today after the Bank of Japan indicated that it’s committed to maintaining monetary stimulus and as the Fed’s decision prompted speculation that interest rates in developed economies will stay suppressed for longer.

"Brazilian assets should continue advancing as interest rates remain low globally," Vitor Suzaki, an analyst at brokerage Lerosa Investimentos, said from Sao Paulo.

Swap rates on the contract maturing in January 2018, a gauge of expectations for Brazil’s interest rates, dropped 0.11 percentage point to 12.36 percent.

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