THE dollar (USDBLR) closed sharply against the real on Friday, marking its second straight week in the red, a move that experts said followed the recent retreat of the US currency from peaks in two decades abroad.
The spot dollar registered a drop of 0.98%, at 4.8713 reais, its lowest level for closing since April 22 (4.8065).
The drop came after the currency had already retreated 1.24% the day before, helping to consolidate a devaluation of 3.69% compared to last Friday’s close, the dollar’s worst weekly performance since the fall of more than 5% seen in the period ended March 25th.
The US currency closed below its 50-day linear moving average of 4.8919 reais, an important technical level.
At B3 (B3SA3), where negotiations go beyond 17:00 (Brasília time), the dollar futures contract of the first maturity fell 1.23%, at 4.8885 reais.
Part of the markets pointed to the news that the China cut a rate fees benchmark for mortgages this Friday as it tries to revive the housing sector and the economy, as the prospect of supporting demand from the Asian country has raised the price of several commodities, such as iron ore.
The stimulus announcement in China comes on the heels of prolonged lockdowns in some key cities, including the financial hub of Shanghai, that were enacted as the country grappled with a new wave of coronavirus cases. Covid-19.
Carla Argenta, chief economist at CM Capital, for her part, told Reuters that the dollar’s fall this past week mainly reflected the strong alignment of the domestic market with the international market, where the US currency index against a basket of strong rivals retreated from peaks in two decades reached earlier this month, following a slowdown in US sovereign debt yields.
After surpassing the 105 mark last week, a peak since 2002, the dollar index was trading around 103.03 on Friday afternoon. “This movement is reproduced in emerging markets as well”, explained Argenta.
In a report, Bank of America strategists shared a similar view. “While the idiosyncratic narratives of emerging markets should eventually begin to play a more significant role as drivers of asset prices, it is global factors that remain responsible for most of their recent repricing.”
according to BofAsigns of deteriorating growth in China amid Covid-19 lockdowns and more aggressive rhetoric in the Federal Reserve in the fight against inflation explain the superior performance of the dollar seen earlier in May, with the recent liquidation of the US currency being of a “more technical nature”, an adjustment after a significant jump.
China is Brazil’s main trading partner, which is why it is usually very sensitive to any warning signs from the world’s second largest economy. The stronger tightening of US monetary policy tends to affect local assets by increasing the attractiveness of US fixed income, which is much safer than the Brazilian one.
“Although positioning is much cleaner in emerging markets following the recent correction (downwards in local asset prices) and many curves are already pricing in an aggressive rate hike (in the US), we expect volatility to remain high as worst-case scenarios, such as US stagflation or a global recession, are not fully priced in,” BofA warned in the report.
With the performance of this session, the dollar starts to accumulate a drop of 12.6% against the real in 2022, although it is still 5.7% above the lowest closing value of this year, of 4.6075 reais, reached in early April.
Most of the currency’s losses this year were concentrated in the first quarter, when it fell 14.5%, its worst quarterly performance since mid-2009.
This movement had been fueled mainly by the high level of Brazilian interest rates, after the Selic rate reached double digits, and by an international surge in commodity prices as a result of the war in Ukraine.
Argenta, from CM Capital, said that these factors are still present, despite the return of the dollar’s losses in relation to the lowest levels of the year against the Brazilian currency.
According to her, what happened was that the allocations made to take advantage of Brazil’s attractiveness had already been made, and, although they were not fully reversed, they also did not have sufficient continuity to continue promoting a sustained appreciation of the real.
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Source: Moneytimes
I am an author at Global happenings and I mostly cover automobile news. In my time working in the automotive industry, I have developed a keen interest in the latest developments and trends. My writing skills have also allowed me to share my knowledge with others through articles and blog posts.
