Brazil will permit its sovereign wealth fund to buy dollars, leading one renowned strategist to conclude that the fund will seek to restrain the soaring real.
That’s Tony Volpon, head of Latin America strategy for Nomura Holdings.
He told Bloomberg the move will fail, as foreign investment keeps flooding into Brazil.
“It’s just another tool to weaken the currency and to help the exporters,” Volpon said. “It’s going to be very unsuccessful.”
A falling currency helps a country’s exports by making them cheaper in foreign currency terms.
The government’s decision to allow its year-old fund to buy dollars gives the country two official bodies that can do so. The central bank is the other.
The real jumped 33 percent last year, as Brazil’s economy was one of the world’s first to rebound from recession. That was the largest annual gain since the currency was created 17 years ago, according to Bloomberg.
Goldman Sachs called Brazil’s currency the world’s most “overvalued” in a recent report.
Volpon predicts the dollar will drop another 7 percent against the real by year-end, to 1.60 reais, as Brazil’s bulging budget and current account deficits draw more foreign investment to finance them.
He’s not alone in believing the real will continue to rise.
"The fundamentals point to a stronger real, with commodities rising and the dollar weakening globally," Roberto Padovani, chief economist at WestLB in Sao Paulo, told Reuters.
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