Dollar Closes Sharply Down at R$5.54 with Prospects of Biden Victory

RIO DE JANEIRO, BRAZIL – The US dollar closed down by 1.92 percent, at R$5.5459 on Thursday, November 4th, with the markets’ positive reaction to the election results in the United States, with Democrat Joe Biden drawing closer to victory. The result is the lowest since October 9th.

With the drop, the dollar has accrued a 3.35 percent decline in the month, although it still records a 38.31 percent rise in the year to date.

On Thursday, the Central Bank conducted a traditional swap auction of up to 12,000 contracts maturing in April and August 2021, said Reuters.

External and local scenario

Investors’ attention continues to be focused on the outcome of the elections in the United States. If he wins in Nevada, Democrat candidate Joe Biden should hold enough votes in the Electoral College to become the 46th president of the United States. For Republican Donald Trump, the path is harder: he must win in Georgia, North Carolina and Pennsylvania and flip the result in Nevada.

Abroad, European stock markets traded higher. Oil prices were down slightly.

“The potential for Trump to legally challenge postal voting rules or call for a recount of votes in some parts of the country has been incorporated into the financial market, which is evolving. The Senate is expected to continue to be led by the Republicans and the House by the Democrats. Either way, expectations for the new stimulus program [in the United States] are growing,” said the Mirae Asset team.

Meanwhile, the European Commission has assessed that the second wave of the coronavirus pandemic has destroyed hopes for a rapid economic rebound in the Eurozone. According to the Commission’s new projections, the Eurozone’s Gross Domestic Product (GDP) will drop 7.8 percent this year and the recovery in 2021 will be less significant than expected: 4.2 percent, against 6.1 percent in July’s projection.

In Brazil, concerns persist surrounding the trajectory of public debt and the government’s ability to steer a credible plan for the recovery of public accounts.

Doubts over how the government would finance a social assistance program without breaking the spending cap have attracted the attention of local investors, who are also displeased with the progress of the structural reform agenda. This scenario, coupled with the extremely low basic Treasury lending rate (SELIC) and poor economic growth, helps explain the year’s cumulative high of 40 percent for the dollar against the real.

Among investors there is a clear perception that Biden’s policies, particularly the approval of new fiscal aid measures in the world’s largest economy, would contribute to a globally lower dollar which, in turn, could assist emerging countries’ currencies.

For Roberto Indech, chief strategist of Clear Brokerage, although the dollar may lose ground in the markets, the trend is that volatility will persist in Brazil. “As we are running a fiscal deficit, we may feel the currency drop differently or not at all. Our fiscal situation is contributing to the rise of the dollar and the currency is extremely high, due to our very worrying fiscal scenario”, he says.

Source: G1