RSX - Brazil And Russia: Divergence And Convergence
By Erik Norland
So far this decade, Brazil and Russia's currencies have turned in nearly identical performances. Spot real ((BRL)) and spot ruble (RUB) values are down about 55% versus the U.S. dollar ((USD)) (Figure 1).
Figure 1: Spot Real and Ruble are Down About 55% This Decade Versus the U.S. Dollar.
However, the evolution of spot prices doesn't tell the whole story of currency movements, because the spot price ignores the accumulated interest rate carried over. Brazilian and Russian short-term interest rates have averaged 7.7% and 6.9% higher than U.S. short-term rates, respectively. Even