Source: Yahoo Finance
Recently, Brazil's lower house of Congress voted in favor of impeaching President Dilma Rousseff. If the upper house decides to put her on trial, she will be suspended for six months and the Senate will decide her fate. The Brazilian Real has appreciated sharply anticipating a recovery in the economy.
The Brazilian economy is expected to shrink 3.66% year-over-year (or yoy) in 2016. Growth will resume next year and the country is expected to grow 0.35% yoy. Its growth is dependent on its major trading partner China, which slowed down in the last one year. Brazil's beef and iron ore exports will improve as growth resumes in China.
Foreign investors have invested $1.71 billion ( 5.97 billion Reals) in the domestic equity market in the first half of March 2015. The country's high interest rate of 14.25% is attracting investment in the debt market. The domestic real estate market also appears attractive. Foreign investors are likely to pour in more money hoping that a political change will revive the Brazilian economy.
Weak U.S. dollar
The U.S. dollar index is hovering around 95 levels in the past few months. It is unlikely that the Fed will hike interest rates this year due to weak global growth and the impact of a stronger U.S. dollar on the U.S. economy. This could lead to appreciation of emerging market currencies including the Brazilian Real.
I remain bullish on the Brazilian Real with a price target of 3.0 against the U.S. dollar by current year end.
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