anyone still trading gold ?
Interesting AH news from Brazil, trying to stem hot money inflows and keep BRL capped. This will ripple across entire forex complex. Gold is reading the correct message from the news too: it's going higher, on the signal that everyone will be forced to keep their currency in check agains the USD decline.
This is another canary move not unlike the OZ rate rise. Another sign. Fascinating stuff. The US is dragging the ROW into an inflationary conflagration of epic proportions and the only question is how countries follows, and then eventually have to get off that train. For tonight, Brazil has "had enough" and decided to follow us by capping strength in the BRL. Let's see how far they try to follow us.
Gold is gonna love this. This is the fetid swamp of competitive currency deval/weakness upon which gold thrives.
Brazil Real Cut to ‘Underweight’ at RBC on Tax (Update3)
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By Camila Fontana and Catarina Saraiva
Oct. 19 (Bloomberg) -- Brazil’s real was cut to “underweight” from “overweight” by RBC Capital Markets on concern the government’s imposition on taxes on short-term capital inflows will stem the currency’s gains.
The real, the best-performing major currency this year, dropped for a third day, losing 0.5 percent to 1.7177 per dollar at 4:55 p.m. in New York. It has climbed 35 percent in 2009.
Last week the Brazilian currency completed a seventh straight week of gains, the best run since 2004, helped by the economy’s recovery from a recession, increased demand for the nation’s stocks and a credit rating upgrade by Moody’s Investors Service. The real may rise to 1.6 per dollar before falling, former central bank director Carlos Eduardo de Freitas said in an interview Oct. 16.
Brazil will impose taxes on purchases by foreign investors of real-denominated, fixed-income securities and on purchases of stocks, Finance Minister Guido Mantega said today. The measures are being taken “to avoid an excess speculation in the stock market and in capital markets,” he told reporters in Sao Paulo.
The Bovespa stock index rose 1.6 percent today and is up 79 percent this year.
Today’s announcement reverses last year’s decision to end such taxes. In October 2008, President Luiz Inacio Lula da Silva eliminated a tax, known locally as IOF, of 1.5 percent on foreign investments in certain financial products and of 0.38 percent on foreign-currency loans.
Larger than Expected
Brazil today set a 2 percent IOF tax on foreign investment that will cover both equity and fixed income markets, RBC’s global head of emerging markets research Nick Chamie wrote in a note to clients. The size and breadth of Brazil’s tax on foreign capital inflows were larger than expected and will “likely to have a negative market impact on the real and on the local yield curve,” he wrote.
Mantega said the measures may not lead the real to weaken, but are designed to slow its appreciation and prevent the creation of bubbles in Brazilian markets. “These are to prevent excesses,” he said.
“Brazil is now at a magical moment but also has weaknesses and is subject to a sudden outflow of capital,” said Freitas, who headed the central bank’s economic department from 1991 to 1993, in a telephone interview from Brasilia. “That is why the central bank needs to be prepared and keeps increasing international reserves. Economies do not adjust smoothly.”
President Luiz Inacio Lula da Silva approved a plan to tax foreign inflows as a way to curb the appreciation of the real against the dollar, Folha de S. Paulo newspaper reported on Oct. 17. Lula last week denied a report published in O Estado de S. Paulo newspaper that said the government was planning to tax foreign inflows.
Brazilian central bank President Henrique Meirelles said in an interview last week that emerging-market currencies that have been appreciating as economies recover from a global recession may become volatile as markets overprice assets.
‘Exaggeration’
Central banks need to “alert investors and markets of the risks of exaggeration in the formation of prices, which can lead to future corrections and create unnecessary volatility,” Meirelles said in the interview in New York.
The real’s gain this year is the largest among the world’s 16 most-traded currencies.
“The real may be overvalued but the amount of interest from investors has been overwhelming and I can’t see it changing any time soon,” said Beat Siegenthaler, chief emerging-markets strategist at TD Securities Ltd. in London. “Interest from places like Japan continues to increase.”
Rising Reserves
The currency is gaining even as the central bank buys dollars daily in a bid to stem the advance.
Brazil’s international reserves have risen by $25.3 billion this year to $232.1 billion on Oct. 14, according to data compiled by the central bank.
Analysts estimate the real will end the year at 1.75, according to the median of 20 forecasts compiled by Bloomberg.
Brazilian economists raised their year-end forecast for the real to 1.7 from 1.76, according to a weekly central bank survey of about 100 analysts published today.
To contact the reporter on this story: Camila Fontana Correa in Sao Paulo at cfontana@bloomberg.net.
Last Updated: October 19, 2009 17:05 EDT
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