Brazil Real Gains as Rising Commodities Boost Investor Appetite

By Adriana Brasileiro

Jan. 14 (Bloomberg) -- Brazil’s real strengthened as rising commodity prices increased demand for assets in the largest exporting country in Latin America.

“The price of commodities is the main factor moving the real because our currency market is so dependent on trade flows,” said Francisco Carvalho, head of currency trading at Liquidez Corretora in Sao Paulo. Nearly two-thirds of Brazil’s exports are commodities such as iron ore, coffee and orange juice.

The Brazilian currency advanced for the first time this week, gaining 0.3 percent to 2.3108 per U.S. dollar at 7:56 a.m. New York time, from 2.3168 yesterday.

Crude oil, among Brazil’s top three exports, gained for a second day after OPEC members said they may impose more production cuts to boost prices. Soybeans, another Brazilian export, also increased.

The real nearly doubled from 2003 to 2007 as soaring commodity prices led Brazil to post consecutive trade surplus records.

The currency rose to a nine-year high of 1.5545 per dollar on Aug. 1 as the highest inflation-adjusted interest rate in the world flooded the currency market with dollars. The real slumped 33 percent from that high through the end of 2008 as the international credit crisis cut economic growth, pushing commodity prices lower and curbing investments in emerging markets.

The yield on the government’s zero-coupon local-currency bonds due January 2010 climbed four basis points, or 0.04 percentage point, to 11.60 percent. The yield on Brazil’s overnight futures contract for January 2010 added one basis point to 11.48 percent.

To contact the reporter on this story: Adriana Brasileiro in Rio de Janeiro at abrasileiro@bloomberg.net