Dollar soars as Real’s performance worsens amid fiscal risks

RIO DE JANEIRO, BRAZIL – The dollar closed up on Tuesday, Februry 9th, with the market showing concerns of more public spending with no fiscal compensation. This prompted another worst global performance for the Real, despite Central Bank intervention and the sale of US$1 billion in the derivatives market.

This Tuesday, the U.S. currency rose 0.192% against the Real, and closed the day trading at R$5.389. At its peak, the currency reached R$5.4483 (+1.41%), before dropping to R$5.3546 (-0.33%) after Central Bank intervention.

The Real not only led the losses in the exchange markets but was also one of only three of the 33 dollar pairs to drop. The Colombian (-0.15%) and Argentinean Pesos (-0.11%) also fell the day the dollar index dropped 0.55% globally.

Domestically, all eyes are on Brasilia, as Congress considers allowing the benefit to be reinstated with no spending cut compensation and beyond the spending cap. President Jair Bolsonaro has already signaled that the aid should be extended.

Central Bank President Roberto Campos Neto also discussed the topic during an online event held on Tuesday. He said there is a strong impact of the fiscal issue on the exchange rate volatility, which is worrisome. Campos Neto also said that Brazil’s economic rebound “has missed the moment”.

“Once again Campos Neto shows that the country’s financial situation is turbulent and raises the warning of the need for fiscal austerity,” says Henrique Esteter, Guide’s analyst.

Central Bank Intervention

At 1:20 PM, the peak of the trading session, the dollar jumped 1.41% to a rate to R$5.45, and held its position until 2:11 PM, when the Central Bank announced the first foreign exchange swap auction, offering up to 20,000 contracts (US$1 billion).

A total of 14,300 contracts were sold at this auction. At 2:57 PM, the Central Bank announced the second operation of the day, offering the remaining 5,700 contracts, which were later fully placed on the market.

The Central Bank had not offered traditional foreign exchange swaps since January 11th of this year, when it auctioned 10,000 contracts (US$500 million).

The first swap auction this Tuesday, with a lot of 20,000 bonds, was the largest since May 14th last year, when the Central Bank offered the same amount of contracts, at a time when the market was still trying to stabilize after the March pandemic shock.

Source: Exame