US Dollar drops almost 5% in January and falls back to R$5.30

RIO DE JANEIRO, BRAZIL – The commercial dollar closed the last session of January down 1.57% at R$5.305, accumulating a devaluation of 4.83% in the month. The quote is the lowest since September 22, 2021, when the U.S. currency was traded at R$ 5.303.

At the day’s minimum, the dollar even broke through the R$5.30 level, quoted at R$5.285. Analysts point out that the currency is below its 200-day moving average of R$5.38, which paves the way towards the R$5.05 level.

The dollar’s negative performance followed three factors, the first being the global drop of the American currency. Abroad, the Dollar Index (DXY), which compares the dollar to a basket of currencies from developed countries, falls 0.56% after registering five consecutive highs.

The favorable scenario of foreign inflows into Brazil also hurt the dollar. Foreign investors entered the B3 with R$28.14 billion in January, an influx considered surprising by analysts.

“Almost R$30 billion is a very atypical volume for January. Even more so in an election year, when high volatility was expected”, comments Vanei Nagem, in charge of the Foreign Exchange desk at Terra Investimentos.

The expectation is that the movement will continue in February, making room for new real appreciations.

“The dollar should find a stabilization level between R$5.25 and R$5.35. It shouldn’t fall straight down, but it may return to the R$5.00 level in a new wave of optimism,” says Nagem.

Part of the rise is also due to the electoral scenario, which is seen with less apprehension by the market. The reason is the nods to the center by former president Luiz Inácio Lula da Silva, leader in the polls.

“Of the two reasons that most drove the price up last year – concern about the fiscal and the political scenario – the second has lost strength because Lula’s candidacy is now seen as more ‘palatable,'” Rafael Ihara, chief economist at Meraki, told Bloomberg.

Some specialists, however, point out that the current drops already put the Brazilian currency at levels that can call dollar purchases. “Despite comments that the real can strengthen up to R$5.05 per dollar, we do not believe it. We think the big correction has already gone,” Alfredo Menezes, manager at Armor Capital, told Reuters.

It is worth remembering that the sharp drop on Monday was also driven by the technical movement of formation of the Ptax – exchange rate calculated by the Central Bank and used as a reference for contracts involving business in dollars. The Ptax is calculated daily, but usually gets more volatile in the last trading session of the month because this last Ptax will be used for foreign exchange contracts for the following month.

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