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Brazil Real Rises Beyond 1.75 Per Dollar for First Time in Year

October 6th, 2009

realBrazil’s real strengthened beyond 1.75 per U.S. dollar for the first time in a year as debt and equity sales boosted demand for the currency while the outlook for rising rates drew investors looking for higher-yield assets.

The currency rose for a third day, increasing 0.7 percent to 1.7485 per U.S. dollar at 9:59 a.m. New York time, from 1.7598 yesterday. Earlier it touched 1.7358, the first time it moved beyond 1.75 per U.S. dollar since Sept. 9, 2008. Gains for the currency were also fueled by advances in global stocks, including the Bovespa’s rally to the highest since July 2008.

Banco Santander SA’s Brazilian unit may raise as much as 13.1 billion reais ($7.5 billion) from investors as it seeks to expand in Latin America’s biggest economy. Brazil’s national development bank may sell local bonds this year to boost lending, Estado de S. Paulo newspaper reported today.

“The offering by Santander is gigantic, and there are others set to come to market,” said Paulo Petrassi, manager of fixed income investments at Leme Investimentos Ltda in Florianopolis, Brazil. “Brazil is on the radar of international investors and there’s a lot of money coming in.”

Today’s rise extended the real’s gain to 32 percent this year, the best performer against the dollar among 26 emerging- market currencies tracked by Bloomberg.

After breaking the “psychological barrier” of 1.75 per dollar, the real will likely strengthen to 1.70, Petrassi said.

“It’ll gain as a result of the interest rate curve being very high in relation to international markets, and that attracts investors,” he said in a phone interview.

The central bank may boost rates to 13 percent in January 2012 from a record low 8.75 percent currently, according to Bloomberg estimates based on overnight interest-rate-futures contracts.

A deteriorating balance of trade resulting from a weaker dollar boosting imports may hold the real at 1.70 per dollar, Petrassi said.

In the overnight interest-rates futures market, the yield on the contract due January 2011 rose 10 basis points, or 0.10 percentage point, to 10.31 percent, according to Bloomberg data.

By Paulo Winterstein

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