RIO DE JANEIRO, BRAZIL – With the fiscal issue increasing the tension among investors in Brazil, the trade dollar has closed September up 2.46 percent against the Real, quoted at R$5.6150 on purchase and R$5.6160 on sale.
In addition to the coronavirus crisis, which is affecting a good part of emerging country currencies, the Real has other factors weighing on its performance. One of the main ones is the fiscal risk, further increased this week with the market’s disappointment over the government’s proposed Renda Cidadã (Citizen’s Income) program.
Last week, analysts had noted this concern, given the government’s ongoing challenges in achieving the required economic adjustments. The Bank of America even stated that it was more cautious about the real and alerted to short-term volatility.
In an interview with Bloomberg, Sergio Zanini, managing partner of Galapagos Capital, stressed that the market is “hopeful that what was announced on Monday [Renda Cidadã] will be reverted at some point.”
“The market no longer believes in this discourse of the Executive, which on the one hand always defends the spending ceiling and fiscal responsibility, but on the other hand announces plans that go in the opposite direction,” said Breno Martins, fixed income trader at MAG Investments.
On Monday, the government introduced the new social program and its proposal is to use the FUNDEB (Basic Education Maintenance and Development Fund) and judicial deposit release orders as a financing option, a decision that was perceived by many experts as “fiscal pedaling” or chicanery. This sparked much criticism of the proposal and now the market is watching to see what the government will do about it.
On Wednesday, Minister of Economy Paulo Guedes said the economic team never proposed to break the ceiling or to finance programs misguidedly, in reference to directing resources to the Renda Cidadã by limiting the payment of judicial deposit release orders.
At a press conference, Guedes said that his team is analyzing how to merge 27 programs currently in existence as a means to establish a more robust cash transfer program that may provide a cushion after the end of the emergency aid this year. He stressed that since this is a permanent expense, it will need to be covered by a permanent revenue.
With this growing concern in recent weeks, the real has established itself as the world’s worst-performing currency in 2020 to date, with the dollar rising 39.60 percent against the Brazilian currency, according to data from Refinitiv.
The performance is by far the worst, as against the second-worst currency, the Turkish lira, where the dollar has climbed 29,69 percent. As a result, the Real also stands well behind currencies of countries with major crises, such as Argentina, in which the dollar had a 27,25 percent appreciation against the peso.
Other currencies that see the dollar register a sharp appreciation in the year are the Russian rouble (25.17 percent), the South African rand (19.59 percent), and the Mexican (16.77 percent) and Colombian pesos (16.44 percent).
The crisis caused by the coronavirus has weighed heavily on the performance of emerging currencies, as in times of greater tension global investors tend to look for safer assets, among them the US dollar.
On the other hand, against currencies considered stronger, the US currency has recorded a drop this year. This is the case of the euro, with a drop of 4.33 percent in the dollar, the Japanese yen (-3.10 percent), and the Swiss franc (-4.86 percent).
Check the ranking:
| Country | Currency | Dollar performance against the currency in 2020 |
|---|---|---|
| Brazil | Real | +39.60% |
| Turkey | Lira | +29.69% |
| Argentina | Peso | +27.25% |
| Russia | Ruble | +25.17% |
| South Africa | Rand | +19.59% |
| Mexico | Peso | +16.77% |
| Colombia | Peso | +16.44% |
| Peru | Sol | +8.78% |
| Chile | Peso | +4.35% |
| United Kingdom | Pound | +2.71% |
| China | Yuan | -2.47% |
| Japan | Yen | -3.10% |
| Euro Zone | Euro | -4.33% |
| Switzerland | Franc | -4.86% |
In the accumulated previous 12 months, the dollar has climbed 34,94 percent against the real, in a performance very similar to Argentina, for instance, where the American currency had a 32,26 percent high in the same period.
It is should be noted that our neighbors are experiencing a very complex moment, with several defaults on their debts and an inflation which exceeds 42 percent on the 12 months accumulated until August.
Below is the performance of main currencies during the past 12 months:
| Country | Currency | Dollar performance against the currency in the prior 12 months |
|---|---|---|
| Turkey | Lira | +34.81% |
| Brazil | Real | +34.94% |
| Argentina | Peso | +32.26% |
| Russia | Ruble | +18.88% |
| Mexico | Peso | +11.53% |
| Colombia | Peso | +9.50% |
| South Africa | Rand | +9.21% |
| Chile | Peso | +7.67% |
| Peru | Sol | +6.31% |
| Japan | Yen | -2.12% |
| United Kingdom | Pound | -4.74% |
| China | Yuan | -5.01% |
| Euro Zone | Euro | -6.74% |
| Switzerland | Franc | -7.29% |
Source: InfoMoney