Although Brazilian GDP growth in the second quarter was above expectations, the real did not escape the global wave of appreciation of the American currency in the session this Thursday, September 1, marked by the fall in commodities and increased bets on adjustment most aggressive of US monetary policy.
Aside from a one-time low in the morning, when it dropped to a low of R$5.1480 (-1.03%), amid reports of inflow of trade, the dollar operated at a steady high in the domestic foreign exchange market throughout the session. The highs came in mid-afternoon, when the currency broke the BRL 5.25 ceiling and touched BRL 5.2572 (+1.07%).
At the end of the day, the currency was quoted at R$5.2383, an increase of 0.71%. It was the third session in a row that the dollar rose, a period in which it left the level of R$ 5.03 to exceed R$ 5.23, accumulating an appreciation of 4.07%.
Once again, the main driver of the depreciation of the real was the external environment, although there is a background of caution with the domestic fiscal framework from 2023 onwards, given the promises that take over the electoral race. Better-than-expected US industrial sector data reinforced the prospect that the Federal Reserve (Fed, US Central Bank) will raise the US base rate again by 75 basis points this month.
The US manufacturing PMI measured by the ISM was flat at 52.8 in August, defying expectations for a decline. There is also a defensive posture awaiting the release, on Friday, 2, of the US jobs report (payroll) in August.
Treasuries rates rose en bloc, with the return of the 2-year bond, more linked to the outlook for monetary tightening, topping 3.5%. The DXY index – which measures the dollar performance against a basket of six strong currencies – returned to work above 109,000 points and approached 110,000. The euro, which had been rehearsing a recovery, this Thursday lost almost 1% against the American currencies.
Commodities picked up again. Oil prices dropped more than 3.5%, with the Brent contract for November, a reference for Petrobras, approaching the floor of US$ 90 a barrel. It closed on Thursday down 3.43 at $92.36. Iron ore and copper fell again, amid concerns about the Chinese economy, after news of new outbreaks of covid. It is not by chance that the currencies of emerging countries and commodity exporters, with rare exceptions, weakened against the dollar, especially the Colombian peso, the South African rand and the real itself.
For the exchange analyst at the Ourominas brokerage, Elson Gusmão, the behavior of the exchange rate is very much linked to the external environment of strengthening the dollar, with local factors taking a back seat. “In the morning, there was even a fall in the dollar with the release of good GDP data, but the market soon returned to follow the exterior throughout the afternoon”, says Gusmão.
Along the same lines, operator Hideaki Iha, from Fair Corretora, observes that, with the reduction in the inflow of funds in the morning and the acceleration of the dollar against some currencies abroad, the currency began to reflect more precisely the scenario and caution with outside uncertainties.
The IBGE reported that the Brazilian GDP grew 1.2% in the second quarter (at the margin), above the median of Broadcast Projections (0.9%). In the annual comparison, the increase was 3.2%, also higher than the median of expectations (+2.8%). The release of the result caused a wave of revisions to market expectations for 2022 GDP, including those of institutions such as Bank of America (2.5% to 3.25%), Goldman Sachs (2.2% to 2.9 %), Banco Original (2.3% to 2.6%), and Ativa Investimentos (1.0% to 2.0%).
Banco MUFG Brasil assesses that the scenario has become negative for emerging currencies with the Federal Reserve’s harsh tone, the possibility of recession in the United States and Europe, and below-expected growth in China, which hits commodity prices. Although the differential between external and internal interest still benefits carry trade operations, the bank considers that the real should depreciate from now on given the challenging external environment.
“Additionally, the Brazilian Central Bank seems to have ended the monetary tightening. So, new hikes by the Fed will quickly reduce the interest rate differential and, in the short term, this could affect the inflow of foreign flows”, states, in a report, the chief economist Carlos Pedroso and the senior economist Mauricio Nakahodo.
They note that the domestic political environment also poses a risk to the performance of the real, as the market may begin to price, especially after the election, fiscal risk, given the stance of leaders in the presidential race. “In short, we believe that the current level of the real is not sustainable. We maintain our call of R$5.60 at the end of the year.”