According to Park East Capital; Brazil’s real, the world’s best- performing currency against the dollar this year, may climb another 7 percent in the next month as traders bet demand for the nation’s stocks, bonds and commodities will grow as the economy recovers.

The real may appreciate to as strong as 1.7 per U.S. dollar after surging recently to an almost 11-month high of 1.825, said Park East Capital currency analysts yesterday in a note to clients. The currency rallied after manufacturing in China, Brazil’s biggest trading partner, climbed to the highest level in a year.

Park East Capital told investors that as the global recovery story continues to gain momentum and acceptable number from China and US payroll continue to abound, currencies such as the real will benefit as peoples optimism rises and attractive yields are pursued.

The real has risen 27 percent in 2009, the best performer against the dollar among all currencies tracked by Park East Capital.

Park East Capital also sounded a note of caution that the rally in the real could negatively impact Brazilian manufacturing exports, such as shoes, furniture, auto parts and textiles. Exports from Latin America’s biggest economy fell 24 percent to $84.1 billion this year through July from the same period in 2008, the according to data presented by Park East Capital. The country’s trade surplus narrowed in July to $2.93 billion from $4.62 in June.

Park East Capital referred to a quote from Jose Augusto de Castro of the Associacao de Comercio Exterior do Brasil, who said recently that Brazil has an overvalued currency, which is not favorable to exports of manufacturing products. The Brazilian manufacturers are losing competitiveness because of the appreciation of the real.

Brazil’s exports may drop 26 percent this year from $198 billion in 2008 because of the stronger real and reduced demand from the global recession, Castro, 61, said in a telephone interview from Rio de Janeiro yesterday.

Visit the Author's website: