Monday, April 5, 2010

Brazil is About to Raise Interest Rates: Profit With BZF Currency ETF

With concerns greatly mounting in Brazil about inflation, it is becoming a near certainty that its central bank will need to raise rates in April.

In Brazil, markets are expecting inflation to rise to 5,18% in the latest Focus survey released today (in Portuguese). This is the 11th straight rise in the inflation expectations. One month ago, the expectation on the IPCA index was 4,99%.

The ETF to use for the Brazilian real is BZF:

If Brazil does indeed raise rates, then you'd expect BXF to move higher. it is already one of the best performing currecnies. Please take a look at ther performance of BZF vx FXA, FXC, UUP, and FXE:

Top performer: Brazilian Real. Worst performer: US Dollar.

For those looking for income, BZF also pays a dividend of about 1%:

In addition, BZF has options that can boost income, although they are relatively illiquid:

If you manage to sell the October 30 for $0.35, that adds another 1.3%. In the event those shares are called, that means a profit of 13.7%.

You can also sell puts to get a lower entry price. Anyway you look at this it's a an attractive deal, even if the USD rises against other currencies.

ETF overview:

Disclaimer: The author does not hold any positions in BZF, FXA, FXE, or UUP, although the author holds Canadian cash.

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