ABN Amro Recommends Buying Brazilian Real Against U.S. Dollar
March 11 (Bloomberg) -- ABN Amro Holding NV, the largest Dutch bank, recommends investors buy the Brazilian real against the U.S. dollar as the Brazilian economy, South America's largest, expands.
Brazil's economy grew 5.3 percent last year, its fastest annual pace since 1994, President Luiz Inacio Lula da Silva said on Jan. 28. Brazil's trade surplus, the excess of exports over imports, was $33.7 billion in 2004. That compares to a U.S. trade deficit which grew last year to a record $617.7 billion.
``We are still bullish long-term given Brazil's large trade surpluses and positive structural story,'' wrote ABN currency strategist Shahab Jalinoos, in a weekly currency report to clients published yesterday. He wasn't immediately available for comment.
ABN forecasts the Brazilian real will advance to 2.5000 against the dollar in three months time. The real traded at 2.7132 per dollar at 10 a.m. in London.
ABN Amro also recommends investors keep bets on the dollar to decline against currencies including the euro, the U.K. pound, the Swedish krona, the Canadian dollar and the Japanese yen.
``Both Treasuries and the greenback are suffering from fears that their most consistent buyers in recent years - Asian central banks - are not only too overweight to accumulate further but may even have to cut back current holdings,'' wrote Jalinoos. The U.S. dollar ``will struggle while this perception grips the market's imagination.''
The yield on the benchmark 4 percent U.S. Treasury note due February 2015 has gained 16 basis points since the week began to 4.74 percent. That is its biggest gain since the week ending Feb. 18 when it rose 19 basis points. Yields move inversely to prices.
Koizumi Comments
Concerns that Asian central banks may shift out of dollar- denominated assets were fuelled after Japanese Prime Minister Junichiro Koizumi said yesterday Japan ``in general'' needs to consider diversifying its foreign currency reserves.
Japanese investors, including the central bank, owned $712 billion of U.S. Treasuries as of December, making them the largest foreign holder. Most of the world's currency reserves, holdings of foreign currency at central banks, are in dollars.
The dollar fell the most in six months against the euro and the most in four months versus the yen on Feb. 22 after South Korea's central bank announced plans to boost returns by diversifying its currency reserves. The bank later said it wouldn't sell dollars from its holdings to achieve its goal.
To contact the reporter on this story:
Jake Lee at jlee127@bloomberg.net
To contact the editor responsible for this story:
Daniel Moss at dmoss@bloomberg.net.
Last Updated: March 11, 2005 05:18 EST
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