The view on Brazil’s near- and mid-term prospects will, to a large extent, be determined by the answer to the currency question. And there are many valuation theories: going by Brazil’s real effective exchange rate the currency is significantly overvalued compared with its 10-year average.
One banker talking to Euromoney repeatedly used the Big Mac Index to argue that the currency is about 40% overvalued. A Nomura Securities graph is more compelling. It shows the dollar-real inverted exchange rate compared with the CRB Metal Index. The strong correlation is evident and provokes two thoughts. First, if the real’s valuation is linked to the CRB Metal Index – and as the world’s largest iron...
