Brazil is not a country Americans think about all that often but it is a huge country and an economy which has long been on the rise. No longer. A political crisis (driven by a very crony socialist president) coupled with the bottom falling out of commodity prices (driven by a declining China – also a crony state reaping what it has sown) have combined to hammer the country.
This is not an isolated issue of concern only for currency traders and international economists. What we are seeing is contagion. Trouble in China is passing through to much of the world’s developing economies. As the dollar has strengthened many of the world’s second tier economies have suddenly found significant headwinds.
But oil, priced in dollars is cheap – for us. Nice to have a reserve currency. (In most respects.Texas and North Dakota are feeling it on the chin though thanks to cheap oil.)
The Brazilian real hit an all-time low against the U.S. dollar on Wednesday, the latest in a plague of bad news for the emerging market. And according to one currency strategist, there’s no telling when the real problems will end.
Boris Schlossberg, managing director of FX strategy at BK Asset Management, said it’s impossible to say how far Brazil’s currency will fall.
“It’s astounding, actually,” Schlossberg said Tuesday on CNBC’s “Trading Nation.” “I remember just a few years ago a steak dinner in Sao Paolo was more expensive than a steak dinner in New York. That’s how strong the real was. So it’s just been an incredible fall in the currency’s value.”