RIO DE JANEIRO, BRAZIL – The dollar started March at an eight consecutive nominal high against the Brazilian currency, nearing R$4.49, after an earlier downward adjustment attempt frustrated by constant uncertainty about the economic effects of the coronavirus worldwide.
The real performed weaker than the vast majority of its emerging peers, which were appreciating on a day of some respite in global markets as investors clung to triggering signals from central banks.
The underperformance of the Brazilian currency remains dictated by lower interest rate attractiveness and uncertainties about economic growth.
The interest rate projections for the bonds listed on B3 fell sharply in the second quarter, with short-term rates dropping 13 basis points, suggesting greater stakes for cuts in the SELIC, in a context of a still strained economy.
Successive interest rate cuts in recent months have reduced the difference between the rates paid for Brazilian bonds and US bonds – regarded as the safest in the world. Thus, foreign investors have been less stimulated to invest in local fixed income securities, which has hindered the exchange flow and played against the improvement in the country’s dollar supply.
The lack of economic momentum likewise clouds the scenario for the flows. The Central Bank’s Focus survey showed on Monday a drop in GDP growth projections this year, two days before the IBGE released the official figures for the 2019 fourth quarter.
Throughout the day, the dollar fluctuated between a high of 0.59 percent at R$4.5076 and a drop of 0.21 percent at R$4.4715. Foreign markets worsened the signal in the late afternoon after US health officials revised the total of confirmed cases of coronavirus in Washington State to 18. In Brazil, the number of suspected cases jumped to 433, from 207 the day before.
Although up, the currency closed nearer the intraday minimum than the maximum. The cash dollar closed the Monday up 0.13 percent, at R$4.4868 on sale, a new nominal historical high for a closing.
It was the ninth consecutive trading session in which the dollar appreciated, equaling the sequence seen in December 2005.
In the B3 exchange, the future dollar was stable at R$4.4885.
The weaker level of the real, however, is starting to attract some positive recommendations for the currency. The Bank of America, for instance, advises buying the real instead of the Mexican peso, due to “extreme prices, extreme positioning” and expectations that the growth delta will still favor Brazil in the wake of economic reforms.
“The risks to this operation would be the reform agenda failing to progress further in Brazil, a sharp drop in global commodity prices or an even greater monetary policy dissent between the two countries,” BofA strategists said in a note.
Source: Exame