O dollar closed up 1.61% this Tuesday (16), quoted at R$ 5.2688. Earlier, the currency surpassed the R$5.28 mark in the local market, reaching the highest level since March 2023.
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Behind the currency spike is a “perfect storm” of risk aversion, aggravated by the confirmation of the Minister of Finance, Fernando Haddad, that the fiscal target of a surplus of 0.5% established for next year will not be achieved – instead, Brazil it must have zero deficit, same target as 2024.
A dollar exchange rate today reinforces defensive exchange positions in the futures market and there is also demand in sight from foreign investors who are leaving the Stock Exchange and the country, after a worsening perception of public accounts, in the wake of the change in fiscal targets for the coming years in order to increase spending government, says director Jefferson Rugik, of Correparti brokerage.
According to him, there is also a great external contribution to the pricing of the exchange rate given the signs of interest rates being maintained for a long period in the USA, which support demand and the rise in rates on Treasuries (American debt securities), in the uncertainty about the developments of the Israel-Iran conflict and in relation to the Chinese economy.
Why is the dollar rising?
At the beginning of the week, the economy leader of Luiz Inácio Lula da Silva’s (PT) government, Fernando Haddad, confirmed that the fiscal target of a surplus of 0.5% will not be achieved. “This shows that the government is having difficulty finding revenue and has increased spending. This creates fear for foreign investors, who, taking advantage of the wave of high interest rates abroad, end up encouraged to withdraw more and more money from Brazil. And the more money is withdrawn from here, the higher the price of the dollar becomes”, says Gabriel Meira, specialist at Valor Investimentos.
Abroad, the lack of visibility regarding the start of interest cuts in the United States has been putting pressure on the dollar upwards since the beginning of the year. The most recent American inflation and employment data, for the month of March, showed that the country’s economy is still resilient and prices continue to rise above expectations. The conclusion is that the persistence of inflation increasingly eliminates the possibility of a reduction in interest rates by the Federal Reserve (Fed, American central bank).
Since July last year, the country has maintained interest rates between 5.25% and 5.5% per year, the highest level in almost 24 years. With the safest fixed income in the world offering higher returns, foreign investors tend to take “dollars” from more volatile markets, such as Brazil and other emerging nations, and migrate this capital to American treasury bonds.
Furthermore, geopolitical conflicts also helped to accelerate the flight to the dollar, which is considered a “protective asset” in times of crisis. Last Saturday (13), six months after the radical group Hamas carried out a surprise attack on Israel, Iran bombed the Israeli state. The insecurity brought about by the war was felt in the markets, with the widespread fall of cryptocurrencies after the announcement of the offensive and the rise of the dollar against the real since Monday (15).
An escalation of the war in Israel could put pressure on oil prices due to possible production difficulties. With more expensive fuels, inflation tends to rise around the world – which also generates, in a second instance, a run for the dollar.
Why does the dollar exchange rate go up and down?
When there is a greater demand for foreign currency and the exchange rate rises to unwanted levels, the Central Bank can sell dollars on the market, increasing the currency’s supply and putting pressure on the price. In this way, the real appreciates again in comparison to the dollar and the exchange rate falls.
On the other hand, when there is a large inflow of dollars into the country, the BC can acquire the North American currency and inject more reais into the economy to prevent the exchange rate from falling.
What is the relationship between the dollar and the Stock Exchange?
Several companies have shares traded on the stock exchange. As trading takes place throughout the day, through supply and demand, the price of the dollar can rise or fall. Several factors influence the currency price, such as political and health crises, causing investors to place or withdraw their investments from the country.
* With information from Broadcast
Why is the dollar worth more than the real?
A exchange rate of the real against the dollar It is a structuring indicator of the economy. This is due to the importance of the North American currency in the foreign exchange market, in addition to being the official currency used in international trade.
The dollar established itself as the world’s main currency in the 20th century, which ended in 2001. In the First and Second World Wars, the powers involved spent a large part of their reserves on war expenses, gold stocks were therefore scarce. At the end of these conflicts, the USA consolidated itself as a world power and its currency, the dominant one in global markets. Thus, most business between countries began to take place using the North American currency.
Exchange operations occur between any currencies, but it is in relation to the dollar that how much they are valued is compared. When exchanging reais for Chilean pesos, for example, the relationship of these currencies against the dollar supports the exchange.
This is the reason why there is so much talk about the trade balance. When a country exports a lot – as is the case with Brazil, although the commodities have lower added value – or receives a lot of tourists, more dollars enter the local economy. When it matters a lot, it is necessary to buy more products at American prices and this becomes unfavorable to public accounts.
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