Brazil real best-positioned Latam currency-Merrill

Wed Feb 18, 2009 12:42pm EST
SAO PAULO, Feb 18 (Reuters) - Brazil's real is the best-placed currency in Latin America to weather increased risk aversion caused by the ongoing turmoil in global financial markets, U.S. securities firm Merrill Lynch said.
The country's massive $200 billion in foreign exchange reserves and the central bank's market interventions will likely keep the Brazilian currency steady for most of the year, Merrill said in a report dated Feb. 17 .
The real BRBY should strengthen by the end of 2009 as investors flock back to Brazil because of the country's high domestic interest rate.
"Improved global risk appetite toward the end of the year should encourage renewed financial inflows given the attractive carry," Merrill said in a report, referring to an investment strategy where investors borrow in currencies with low funding costs such as the Japanese yen to buy high-yield assets.
Merrill revised its 2009 and 2010 forecasts for the real to account for a weakening of the currency in recent months. The firm sees the real trading at 2.3 per dollar in March, a low point for the year, before strengthening to 2.1 in December and 1.95 at the end of 2010.
The estimates compare to 2.05 for March, 1.9 for December 2009 and December 2010, which Merrill forecast on Nov. 25.
The real weakened 1.4 percent on Wednesday to 2.358 against the dollar.
Mexico's peso also stands out as a well-performing currency in the region, Merrill said. The peso is forecast to trade around 14.5 to the dollar for most of the year, before a "strong rebound" at the end of 2009 as risk aversion eases.
Mexico's currency is forecast to gain to 13.25 pesos per dollar at the end of 2009 because "the unwinding of the oil revenue FX hedging should provide strong support to the currency," Merrill said. The peso should gain further in 2010, trading at 12.5 pesos at the end of December.
(Reporting by Elzio Barreto; Editing by Diane Craft)