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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Seeker of Truth who wrote (59804)	2/1/2005 6:01:38 AM
From: elmatador	Respond to of 74559

Looks like Brazil is out to fleece carry traders Real hits 2½ year high against dollar By Steve Johnson in London Published: January 31 2005 11:39 \| Last updated: January 31 2005 17:18 On a quiet day for major currencies the Brazilian real stole the headlines. The currency rose a further 1.5 per cent to a two-and-a-half year high of R$2.6115 to the US dollar, taking the real's gains to 18.6 per cent since May 2004 and 3.8 per cent in the last ten days alone. The real's surge has largely been driven by rapidly rising interest rates - the benchmark Selic rate was hiked to 18.25 per cent last week, a rise of 2.25 percentage points since September - which have drawn carry trade investors into the Brazilian bond market. The minutes of the last meeting of the monetary policy committee, the Copom, hinted at further rises to come, with the bank's 2005 inflation target of 5.1 per cent lagging market expectations of 5.74 per cent. “The rise in the real has been two-pronged; there is a view that the Copom is going to take a relatively hawkish bias compared to the Federal Open Market Committee, and the balance of payments fundamentals still look strong,” said Mike Newton, global head of emerging market forex strategy at HSBC. The excitement spread like wildfire, with BNP Paribas saying in a note on Monday that “the incredible high level of real interest rates ensures a continuous appreciation of the currency,” and Merrill Lynch recommending its clients take a short dollar-real position. While modest ongoing dollar-buying by the Brazilian central bank may continue, Mr Newton does not anticipate a concerted attempt to push the real lower. “For the central bank to give a strong signal on rates and then have heavy intervention would seem contradictory,” he said. Malcolm: I am suspecting Brazil let them in, once there, prints and buy USD on the cheap to boost reserves.,