As U.S. Dollar Weakens, Brazil and China Deal

The US dollar has fallen 10% since it hit a three-year high on a trade-weighted basis in March of 2009. This week it reached its lowest point against a basket of currencies since December.

That has prompted fears that just as the dollar benefited when investors scrambled out of risky positions, so it will suffer as they seek out yield. The dollar has fallen 8.8% against the pound and lost 3% against the yen since March. Emerging market and commodity-linked currencies have rallied even more against the dollar over that period, with the Australian dollar up 20%, the Brazilian real 15% stronger and the South African rand up 16%.

Meanwhile, Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”

Comments

[notsosmart:]

more & more of this will happen so just keep raising u.s. bank salaries to hold on to these genuises who could not find a job if they quit.

May 27 03:53 PM