Brazil Real Falls to R$3.34 per US$1, the Lowest in Twelve Years

By Jay Forte, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The U.S. dollar ended this Friday (July 24th) selling at R$3.347 to US$1, an increase of R$0.051 (1.65 percent) on the day. The Brazilian real is at its lowest to the dollar since March 31, 2003, when the dollar closed at R$3.355.

In the largest gap of the day, around 3:40 PM, the dollar was being sold at R$3.354. The U.S. currency is up 7.66 percent in July and 25.89 percent in 2015 compared to the Brazilian real.

Since Brazil’s economic team announced yet another reduction of 0.15 percent to the GDP and the primary surplus target (saving to pay the interest on public debt), the dollar began to rise.

The forecast for the country’s GDP is sinking again after having stalled last week. Forecasts are now estimating a contraction of 1.7 percent. This would be the worst result for Brazil since 1990. In 2016, the GDP is set to grow by only 0.33 percent.

According to economists surveyed by the Agencia Brasil, the possibility that Brazil could lose its investment grade from credit rating agencies, have pushed the exchange rate even lower. Not even the statements of the minister, Joaquim Levy, were sufficient to remove the pressure on the currency.

“The market is still in an inertial motion with the announcement of new fiscal targets. We see a moment of continuing losses in the Ibovespa [Brazilian stock market] and the dollar rising. It’s a lot of risk aversion and investors are anticipating the possibility of such investment grade loss,” Raphael Figueredo, an analyst at Clear Corretora told OGlobo.

It has been a drastic change in currency values over the last five years, when in 2010 the Brazilian real (BRL) had soared to an annual exchange rate of R$1.66 to US$1. In March 2015, the real continued a downward trend that started in April 2014, falling sharply against the U.S. dollar.