Brazil's currency nears fair value after dramatic decline
By Silvio Cascione and Walter Brandimarte
BRASILIA/SAO PAULO Aug 17 (Reuters) - The Brazilian real is trading at or near fair value after losing one quarter of its worth since Jan. 1, economists said, suggesting a possible respite for one of the year's most battered currencies.
Emerging market currencies in general have been sliding, and unexpected domestic and international events could still cause the real to overshoot toward its all-time low of 4 reais per dollar. But even Brazil's political crisis, one of the main drags on the currency this year, does not look as bad as it did a couple of weeks ago.
Nine of 10 economists surveyed by Reuters estimate that, considering Brazil's economic fundamentals, the real is now fairly priced at between 3.20 per U.S. dollar and the current level of 3.50. So far this year, it is the fourth-worst performer among the 152 currencies tracked by Reuters, only outperforming those of Kyrgyzstan, Ukraine, and Azerbaijan.
Economists acknowledge the real could keep falling as a weaker China cuts back on commodity imports from Brazil. But additional losses are looking less likely following signs that President Dilma Rousseff may be breaking a political logjam that has been blocking reforms.
"Could the worst be over for Brazil?" Brown Brothers Harriman emerging markets strategist Ilan Solot wrote in a research note. "Only time will tell. But the idea that we are approaching an inflection point is not as far-fetched as it was just a month ago."
A more stable currency comes at a crucial moment since it would help the central bank rein in inflation without a need for further rate hikes. It could also reassure Brazilian consumers, whose confidence has sunk to record lows.
Also shoring up the real is the central bank's decision to step up intervention in the foreign exchange market, as well as Moody's Investors Service's recent declaration that the country's investment-grade rating was safe for the next couple of years.
Luis Stuhlberger, one of Brazil's most influential investors and widely respected for making huge profits betting against the real, joined the chorus last week in his Verde Asset Management's monthly letter. Continuación...