Thursday, December 04, 2008

The Brazilian Real melts....

The Brazilian Real fell to eight week lows on the back of speculation that interest rate cuts are near. Yesterday we saw Industrial Production fall 1.7% after expecting flat. This caused yields to tumble 60-70bp alone the curve. Despite the best efforts of the Central Bank the currency could not get a foothold. The CB sold dollars at two auctions and lent another 1.96 billion dollars to exporters in a separate offer in an attempt to slow down the free fall. It did little good. After the 150bp cut in rates by New Zealand today the market is preparing for a move by the Brazilian CB as early as next week. Certainly the DI curve expects this to happen. Commodity prices, which account for 2/3 of Brazil's exports are also off over 50% from July 2008 highs which is not helping the currency at all.

This is a trend I dare not stand in front of. For now as I wrote about earlier this week I am staying on the sidelines until a little more liquidity enters the markets.

Good Luck and Good Currency Trading.



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