The Brazilian real rocketed to a nearly three-year high around 2.54 vs. the U.S. dollar in late February. Despite modest weakness in the real through mid March, most analysts point to strong underlying fundamentals, a high interest rate environment, and stronger commodity prices as bullish factors for the real rate through year-end.
The Brazilian currency had strengthened significantly vs. the dollar, from USD/BRL 3.23 in May 2004 to the February 2005 2.54 high. Looking back to 2002, the real was trading around 4.00. As Rafael de la Fuente, chief Latin American economist at BNP Paribas notes, “We saw a huge move since 2002 and it’s been almost a one-way street.”
Brazil churned out solid gross domestic product performance in 2004, delivering a 5.3 percent annual reading, which followed 2003’s nearly flat growth.
“The strong economic activity last year and the structural reforms implemented by President Lula attracted foreign investment,” explains Alfredo Coutino, senior economist at Economy.com.
Coutino noted that Brazil attracted the largest level of foreign investment in Latin America in 2004 at around $18 billion.
“There is a constant flow of foreign direct investment into Brazil,” he says.
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