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.
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