O dollar (USDBLR) finally registered a firmer low this Wednesday, after being stable in the previous session after two days of super-rallies, but the move was seen more as an adjustment sponsored by a day of respite in the external markets, in a still uncomfortable general scenario. .
The spot dollar fell 0.52%, at 5.3492 reais on sale. The intraday oscillations continued to be dilated, and the price varied around 10 cents between the maximum (of 5.4243 reais, up 0.88%) and the minimum (of 5.3232 reais, down 1.00%).
The day before, the currency was practically stable, after two consecutive days (Friday and Monday) with increases of more than 2%. In the period, it soared 5.15%.
The real’s recovery came in the wake of external distension. Assets hit hard in recent days, such as the euro, the pound, emerging currencies and global equities, were all over the place as bond yields fell after the central bank of UK act to contain liquidation in the country’s debt market at the center of the latest global shake-up.
While the external environment remains quite unstable, the market is increasingly turning to the Brazilian elections next Sunday, with the former president Luiz Inácio Lula da Silva (PT) reaching the final stretch, gaining breath against the current president Jair Bolsonaro (PL) and with a chance of winning in the first round.
Barclays professionals have recently drawn attention to what they say appears to be a near-zero risk premium at the short end of the yield curve and a modest overvaluation of the real at around 5.15 to the dollar.
According to them, however, the discussions on the 2023 Budget are likely to increase the volatility of domestic assets in the fourth quarter of this year, “regardless of the winner” of the elections.
The implied volatility of the real, a measure of expected fluctuations for the currency, has been above most of its peers.
While the three-month measure is around 20%, the same maturity for the Mexican peso shows 12.4%.
“The weaker performance (of Brazilian markets) could extend into the first half of 2023 if Lula wins, as a deeper overhaul of the fiscal structure takes place. However, the high ‘carry’ (return linked to foreign exchange contracts) and high yields (in fixed income) limit the downward pressure on foreign exchange and local fixed income contracts.”
Treasury data released on Wednesday showed that foreign investors reduced their share of domestic debt by 11.3 billion reais in August, falling from 9.0% of the total to 8.8% in August, the lowest level since December 2009.
According to the Treasury, the scenario of high interest rates in advanced economies harms the inflow of resources into the country, but, on the other hand, the cycle of monetary tightening near the end in Brazil favors foreign investments.
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