In an attempt to control inflation in its growing economy, Brazil’s central bank has intervened in the currency market, strengthening the Brazilian real and related currency exchange traded fund.
WisdomTree Dreyfus Brazilian Real Fund (BZF) gained 1.4% Wednesday but is in the red for the year on a weak Brazilian currency relative to the U.S. dollar.
The real rose to 2.0557, a six-week high, after the central bank sold $1.8 billion in currency swaps and agreed to lend as much as $2 billion in foreign-exchange credit lines, Bloomberg reports.
“The central bank aims to keep the real trading at around 2.05 in 2013,” Joao Paulo Correa, manager of foreign-exchange trading at Correparti Corretora, said in the article. “The swap auctions clearly show that its goal is to avoid raising the Selic rate in 2013.”
Swap rates dipped on speculation that the government will boost lending rates, or the “Selic,” as a way to cap consumer prices. The credit lines increase the supply of U.S. currency as Brazilian companies push the greenback abroad to balance year-end bookkeeping.
According to economists, Brazil’s IPCA index of consumer prices will hit 5.47% in 2013, compared to the projected rise of 5.42% a week earlier. The central bank has a 4.5% midpoint target range for 27 months.
The strengthening real has also boosted the iShares MSCI Brazil Index Fund (EWZ) , which does not hedge against currency risks. EWZ is up 5.9% over the past month. Moreover, rising oil prices are also supporting the Brazil ETF’s outlook. [Oil ETF Jumps on Fiscal Cliff Deal Speculation]
WisdomTree Dreyfus Brazilian Real Fund
For more information on real currency, visit our Brazilian real category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.