Brazilian Real Falls to R$3.688 to the Dollar, Lowest Since 2002

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – The foreign exchange market reacted negatively on Tuesday, September 1st to the announcement by Brazil’s government that it was sending to Congress a budget bill for 2016 which forecast a primary deficit of over R$30 billion. The dollar closed the day at R$3.688 the highest level since 2002, when it closed at R$3.735.

During the day on Tuesday many exchange houses in Rio de Janeiro and São Paulo were selling the U.S. currency at over R$4.10. Market operators are expecting a volatile day on Wednesday as the dollar opened already 1.24 percent higher than Tuesday’s closing, at R$3.73.

According to analysts, the primary deficit announcement for next year’s budget was not the only factor that led investors away from the Brazilian real on the first day of September.

Investors were also dismayed by the negative news coming from China, with the country’s industrial production in August showing a decline for the sixth consecutive month. China is one of the largest importers of Brazilian goods, and a slowdown in the Asian country’s economy is expected to affect Brazilian exports.

Fears that Brazil could in the very near future lose its investment grade credit ratings also fueled the depreciation of the Brazilian currency. After the budget bill announcement, both Fitch Ratings and Moody’s Investors Services, two of the largest credit ranking agencies in the world, indicated concern over the latest economic scenario in Brazil.

Government officials seem to be aware of the turmoil and concerns, both domestic and international, that the country’s current economic situation is raising. President Rousseff went on national television last week to admit that she was unaware early on of the seriousness of the country’s economic situation.