Brazilian real: Dollar and interest rate futures rise with September 7 events and international focus

RIO DE JANEIRO, BRAZIL – The local exchange and interest rate futures markets opened Wednesday’s session higher, as investors cautiously evaluated the political developments of the acts of September 7 and the averse international environment to risk assets.

Around 10 AM, the commercial dollar increased 0.52%, leaving at R$5.2028 in the spot market, after hitting a maximum of R$5.2227. The American currency, for now, gives mixed signals in relation to the main emerging currencies, and, among them, the real only performs better than the Turkish lira.

Meanwhile, the ICE Dollar Index (DXY), which compares the dollar with a basket of six developed rivals, was at 92.62 points, up 0.12%, with market players appealing to the U.S. currency over fears abroad about the level of global economic activity, keeping an eye on the risks generated by the delta variant of covid-19.

In future interest rates, market rates were advancing again, weighing political risks that loom on the radar. The interest rate on the January 2022 Interbank Deposit (DI) contract rose from 6.87% to 6.915%; the DI for January 2023 advanced from 8.63% to 8.69%; the January 2025 contract rose from 9.80% to 9.88%, and the DI for January 2027 rose from 10.27% to 10.35%.

The financial agents are cautiously digesting the elevated tone of the Brazilian President in relation to other governmental institutions, especially the Federal Supreme Court (STF), at the opening of business today.

In his speech during an event in Brasilia yesterday morning, Bolsonaro returned to the charge in relation to the “ultimatum”, valid for “all those who are in the Three Powers Square”. At the time, the president made only a veiled reference to STF Justic, Alexandre de Moraes. Later, however, while participating in the demonstrations in São Paulo, he raised the tone: “Get out, Alexandre de Moraes! Stop being a scoundrel!”

The president also stated that he will not comply with court orders issued by the magistrate and that he will not accept the results of the elections if the system is not changed to allow “public counting of votes,” giving no signs of a truce in the clash with the congress and the electoral judiciary.

For MCM Consultores, the political environment will remain tense, and “the negotiations around issues relevant to Bolsonaro’s agenda have become even more challenging, such as the issue of ‘precatórios’ [court-ordered federal debts], the reform of the Family Grant Program, and the Income Tax reform, among others. In this sense, the risk of paralysis of this agenda should grow, and the outlook is negative for local markets in today’s trading session.”

Renascença projects another session of rising future interest rates under the evaluation of an “extremely complicated” institutional climate. For the brokerage house, politically, “in no way favors Bolsonaro the return of criticism to the electoral system and electronic ballot boxes, especially with regard to his relationship with Arthur Lira [president of the Chamber of Deputies], which weeks ago guided the issue of the printed ballot in the plenary under the promise of closure of this issue, which evidently did not occur,” says the brokerage.

With this, Renascença calls attention to possible internal political movements of the government and the Brazilian political and economic elites before the escalation of tensions in the country, with some center-right party leaders already raising the hypothesis of supporting the president’s impeachment.

The risk of an impeachment process entered the radar after PSDB called its Executive directorate to discuss the possibility – the governor of São Paulo, João Doria, has already defended the thesis. Another reaction in the political arena was the cancellation of votes and meetings scheduled for today and tomorrow in the Senate, a decision made by its president Rodrigo Pacheco.

The demonstrations have clearly shown that Bolsonaro, “contrary to what many believed,” still has strong popular support, which also increases his electoral chances. “On the other hand, the institutional environment is likely to become even tenser. What is the president’s next move?”