Dollar Sets New Record High Against Real; Stock Market Rebounds

RIO DE JANEIRO, BRAZIL – On yet another day marked by fear of a global recession caused by the new coronavirus, instability has diminished. The dollar rose again and hit a nominal record since the creation of the Brazilian real, but the stock market interrupted the succession of drops.

Rising for the eighth consecutive session, the US dollar closed at R$4.481 this Friday, February 28th, up by R$0.006 (+0.13 percent). The price fluctuated considerably throughout the session. At its peak of the day, around 1 PM, the rate hit R$4.513. The currency slowed down in the final trading hours, until closing near stability.

Since the start of the year, the dollar has accumulated appreciation of 11.67 percent. In February alone, the currency climbed 4.56 percent. The Euro traded at R$4.949, up 0.3 percent on Thursday.

The Central Bank (BC) sold US$1 billion in new foreign exchange swap contracts, which are equivalent to the sale of dollars in the futures market. The monetary authority also rolled over (renewed) R$650 million in swap contracts that would mature in April.

In the stock market, the exchange also experienced a volatile day. After dropping for four consecutive sessions, the IBOVESPA index rebounded and closed at 104,171 points on Friday, up 1.15 percent. The indicator only inverted the trend at the end of the day: around 12:15 PM, the index had dropped nearly three percent and was below 100,000 points.

In recent weeks, the financial market around the world has been going through turbulence amid fears of the impact of the coronavirus on the global economy. In addition to the interruption of production in several industries in China, the spread of the disease in Europe and the first confirmed case in Brazil suggest that other economies may reduce activity because of the virus.

With the main international production chains affected, industries in several countries, including Brazil, are suffering from the lack of raw material to manufacture and assemble products. The slowdown in China may also lead to the Asian country to consume less Brazilian minerals and agricultural products. An eventual reduction in exports to Brazil’s main trading partner reduces the inflow of dollars, pushing the exchange rate.

Among the domestic factors that have caused the dollar to appreciate is the recent decision by the Central Bank’s Monetary Policy Committee (COPOM) to reduce the SELIC rate – basic interest rates – to 4.25 percent per year, its lowest level in history. Lower interest rates discourage the inflow of foreign capital to Brazil, also pushing up the rate.

Source: Agência Brasil