Brazil’s real (R$): Listless dollar trading after worse-than-expected U.S. retail sales (August 17)

RIO DE JANEIRO, BRAZIL – The dollar began Tuesday’s trading session slightly lower but changed direction this morning. Among other things, investors assess retail sales in the United States worse than expected by the market, which increases concerns about the impact of new outbreaks of the coronavirus on the global economy.

At 10:15 AM, the dollar was trading  0.09% higher at R$5.2837 on the spot market, hitting a daily low of R$5.2552 earlier.

Investors are also taking the opportunity to realize some profits, traders say, after the recent successive rises of the American currency against the Brazilian. In August alone, the dollar gained almost 1% against the real.

According to the U.S. Commerce Department, retail sales fell 1.1% in July, while a 0.3% decline had been expected. The figures add to concerns about the impact of the Delta variant of Covid-19 on global economic activity.

Market players point out that most risk assets see depreciation today, with delta fears leading the charge. “Recently released weaker economic data from the U.S. and China, as well as expectations regarding the Fed’s next monetary policy moves, were also factors that created some tension,” according to the institute’s economics department.

In the futures market, interest rates were directionless through the end of the first hour of business, with increases in the short sections and slight declines in the middle and long sections of the curve, following recent sharp increases in the longer-term peaks reflecting the tightening of budgetary concerns.

The January 2022 interbank deposit (DI) rate increased to 6.645% from 6.63% at the last adjustment, and the January 2023 DI rate increased to 8.41% from 8.36%. In addition, the January 2025 contract decreased from 9.58% to 9.56%, and in January 2027, DI decreased from 10.02% to 9.97%.

The local domestic asset environment remains challenging, with the proposed constitutional amendment (PEC) undefined and the future of the federal tax reform uncertain. A possible renewed postponement is likely to increase pressure on domestic assets.

At 3:00 PM, Central Bank President Roberto Campos Neto will speak at a Bradesco event where financial agents will be alert to the possibility of a postponement.