A "Real" Currency Winner

You know the dollar’s back in the doghouse – the dollar index just capped off its worst week since 1985. But what’s the best-performing currency of the year thus far? Any guesses?

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The Brazilian real overtook the South African rand today as the world’s best-performing currency. Brazil posted a $146 million current account surplus in April, its government announced yesterday, the first such surplus since September 2007. Brazil’s government has introduced aggressive new tax cuts and new trade agreements (mostly with China), and has thus become the darling of the currency trade. Low taxes, open trade and account surplus is good for a nation’s economy? Huh… Who’d have thought?

“And any current account figure that’s written in black is good for a country and its currency!” chimes in our friend Chuck Butler. “And the real is no exception to this rule.

“The real is trading this morning at 2.0060, spittin’ distance from losing that ‘2’ handle! (The real is a European-style priced currency, so the lower the price, the more value it returns versus the dollar.) The real hasn’t seen the underbelly of a ‘2’ handle since October of last year!

“You may recall last fall, I wrote about how the real was holding serve, but eventually, it had to give up ground, with the euro losing value and commodity prices circling the bowl. But now that the euro and commodity prices are on the rise once again, the real is back in the driver’s seat.”