Score one for the emerging markets. Rating’s agency Moody’s (the folks who brought you AAA super-senior sub-prime CDOs) has raised its sovereign debt rating on Brazil to investment grade.
Only a modest GDP contraction, minimal weakening of international reserves and minimal stress in the banking sector amid the global recession were given as the reasons for the upgrade.
EUR/USD is testing the top of its tight afternoon range after the news, which solidifies the case for the reflation trade. The reflation trade assumes the emerging markets will out-grow developed markets coming out of recession as their middle-classes grow and their economies mature. This has lead to dollar weakness and weakness of major currencies versus emerging currencies over the last six months.