Brazil has been very aggressively trying to keep the Real from strengthening too much as a result of hot-money inflows into the sexiest of the BRICS. They added exchange controls last fall and now say they will use their sovereign wealth fund to buy dollars, if needed. There is “no limit” to the number of dollars the government can buy on the market, according to the Treasury Secretary. The move is intended to limit volatility, not target the exchange rate, they say (yeah, right).
Heavy dollar buying by countries like Brazil tends to keep US rates low but it also undermines the dollar versus the major currencies as often a portion of the dollars bought via intervention are diversified into EUR and GBP which help keep the market convinced that the dollar will intimately collapse. It keeps global imbalances high and rising. Emerging economies will not stop managing their currencies until China sets the pace. That won’t happen for some time to come.
