Currency Strategists: State Street Favors Brazil Real. world's biggest exporter of sugar, benefits from a near 24-year high in the price of the commodity
Currency Strategists: State Street Favors Brazil Real (Update1)
Jan. 24 (Bloomberg) -- The Brazilian real will gain as the country, the world's biggest exporter of sugar, benefits from a near 24-year high in the price of the commodity, according to strategists at State Street Corp.
Rising oil prices are increasing demand for alternative fuels like ethanol, made from sugar cane. When oil prices start to rise Brazil converts more of its cane crop into ethanol from sugar production, pushing up the price of sugar. High commodity prices are generating record trade surpluses in Brazil, the world's biggest producer of sugar.
``With oil prices back near record levels, one can bet that the Brazilians are increasing ethanol production,'' said Harvinder Kalirai, head of research and analysis at State Street in Sydney. ``This means less refined sugar and higher prices.''
The currency was at 2.237 against the dollar by 3:55 p.m. in London from 2.256 late yesterday. It may advance to 2.20 in the next four months, said Carlin Doyle, a State Street emerging- markets strategist in London, in an interview Jan. 13.
The real was the world's top-performing currency last year, and has gained 2.3 percent against the dollar this year as economic growth accelerates in Latin America's biggest economy.
Oil has climbed 11 percent since the year begun after rebel attacks cut shipments from Nigeria and on concern Iran's resumption of nuclear research may lead to reduced exports.
Crude oil for March delivery today traded at $67.83 a barrel in after-hours trading on the New York Mercantile Exchange. Prices reached a record $70.85 on Aug. 30, the day after Hurricane Katrina made landfall on the U.S. Gulf coast. Since Jan. 1 sugar has climbed 15.6 percent.
Kyoto Protocol
Increasing demand for ethanol from countries seeking to lower their fuel bills and cut carbon emissions, will also boost the real and widen the surplus on Brazil's current account, Kalirai wrote.
The surplus in the current account, the broadest measure of trade in goods and services, was $1.74 billion in November from $911 million the month before, the central bank said Dec. 19. The surplus compares with a $222 million deficit in November 2004.
The European Commission, the 25-nation bloc's executive arm, has set targets by 2010 for countries to increase their use of biofuels, which include ethanol. The Kyoto Protocol binds 35 industrialized nations and the EU to cut emissions of gases blamed for higher world temperatures.
White, or refined, sugar prices, which averaged $279.09 a metric ton in London last year, will trade between $300.50 and $532.80 this year and average $407.50, a Bloomberg survey of 17 traders, analysts and buyers published yesterday showed. Prices jumped 37 percent last year.
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``High commodity prices are boosting Brazil's terms of trade and leading to record trade surpluses,'' wrote Kalirai. ``A favorable external backdrop and still high real interest rates should support the Brazilian real.''
Brazil's 17.25 percent benchmark interest rate is 13 percentage points above the Federal Reserve's target rate, making real-denominated assets attractive to international investors. The real has climbed 18.4 percent in the past 12 months, the best performance against the dollar among 16 major currencies tracked by Bloomberg.
Brazil's economy expanded at a 3.1 percent annual pace in the third quarter of 2005, from a 4.4 percent rate in the previous three months, a government report showed on Nov. 30. The nation's central bank expects growth to accelerate to 4 percent in 2006.
Kalirai was previously a senior strategist with State Street in Boston. Prior to State Street, Kalirai worked as an analyst at the Bank of Canada. State Street Corp. is the world's biggest provider of investment services to institutions.
To contact the reporter on this story:
Jake Lee in London at jlee127@bloomberg.net;
Last Updated: January 24, 2006 10:55 EST |
