Friday, October 30, 2009


The Brazilian Real is the currency in Brazil. The Brazilian Real is also known as Reals. The symbol for BRL can be written R$. The Brazilian Real is divided into 100 centavos.

I've been posting quite a bit on currencies recently.
While everyone's been analysing EUR/USD, GBP/USD, USD/CHF etc's a fresh take on the continuing slide in the USD.

USD/BRL is currently around 1.7550BRL to 1USD. In December 2004, it was well over 2.4O BRL to 1USD.

Being one of the emerging BRIC nations, this 'commodity and natural resources driven economy' has attracted significant fund flows as money moved away from the USD.
A quick glance at the USD/BRL chart below shows that USD has lost over 37% vs the BRL over the past 5 years. It's important to remember that the BRL is a 'commodity currrency', ie. it closely tracks the movement in commodity prices.
(Falling commodity prices are positive for the USD and negative for the BRL)

This explains the collapse of the BRL when commodity prices collapsed in July 2008.

Let me also mention that Brazilian Interest rates are nowhere close to the 'almost zero' interest rates in the US. At their Oct. 21 meeting, the Brazilian Central Bank rate committee members voted to hold the country's Selic base interest rate unchanged at a record low 8.75% annually.

Brazil plans to impose a 2% tax on foreign capital inflows toward equities and fixed-income investments in an effort to slow the ongoing appreciation of the country’s currency.

And while we're at it, let's not forget to compare the performance of the Bovespa ( Brazilian Equity Index: ^BVSP) vs. the DJIA. (the Chart says it all!)

The chart of USD Gold vs BRL Gold is also interesting. Gold has been rallying in all currencies.

So what exactly does this blogger make of all this?

Firstly, I must confess to be no expert on the Brazilian economy or currency.

What I can tell you, is that we are witnessing a gradual empowering of countries in the developing world, primarily the BRIC nations.

These are countries with significantly higher savings rates, hard working populations, cheaper labor rates and significant natural resources in the case of Brazil and Russia.

Brazilian blue chip companies are well known the world over - Vale: the world's largest iron ore miner & the petroleum giant -Petróleo Brasileiro S.A, better known as Petrobras to name two!

As I watch the latest 'Mega' Bond auctions in the USD sail through smoothly for now, I wonder how long it will take for the emerging BRIC nations to gradually stake their claim as dominant and financially strong members of the world economy.

The members of the once dominant G5 : France, Germany, Japan, the United Kingdom, and the United States.

The BRIC nations are : Brazil, Russia, India & China.

It's not going to be smooth sailing all the way through, and the BRIC nations are not insulated or decoupled from the ongoing collapse of consumer consumption and the banking sector pandemonium in the developed world,.................................. but over the long term, I'm betting on the BRIC guys!

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