By Lise Alves, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – The recent appetite for riskier assets throughout the world has led the Brazilian real to its highest level against the U.S. dollar in more than thirteen months, closing on Wednesday at R$3.1296/US$1 according to Brazil’s Central Bank. The Brazilian currency, however, is unlikely to appreciate much further say analysts.

Brazil, Real, currency
Brazil’s currency rises to highest value against the US dollar in thirteen months, photo by Rafael Neddermeyer/Fotos Publicas.

“Given the extent of its rally over the past couple of months it’s difficult to make the case that the Brazilian real will now strengthen much further from here,” stated Neil Shearing, Chief Emerging Markets Economist at Capital Economics.

According to Shearing all emerging market currencies have done well over the past few months but the performance of the Brazilian real stands out, appreciating by 15 percent against the U.S. dollar since June. The economist says that the Brazilian currency is now up by almost thirty percent higher (against the U.S. dollar) than it was at the beginning of the year.

The gains, however, should taper off, says the analyst, since although the economy appears to have turned a corner, the rhythm of recovery is likely to be ‘unusually weak’. Shearing believes that policymakers will want to prevent the currency from appreciating much further from its current levels. “A further rise from this point would either threaten to choke off the recovery or mean that any rebound in growth is accompanied by a renewed deterioration in the current account position,” says the executive.

And although the country’s political crisis expected to come to an end in the near future with the Brazilian Senate’s decision on whether or not to impeach suspended President Dilma Rousseff, the Lava Jato investigations continue and may yet implicate other members of the interim government of Michel Temer.

Capital Economics forecasts the real to end this year at R$3.25/US$1 and next year at R$3.00/US$1, above market consensus which calls for the Brazilian real to end 2016 at R$3.50/US$1 and remain at that level throughout 2017.

2 COMMENTS

  1. So after two years of 15% inflation, my back of the envelope calculation is that the Real is now very close to the same over valued state it was in two years ago. Bottom line, impeach your president, raise import duties to further protect local goods, do not build out your infrastructure, jack up interest rates to control inflation, over build and don’t plan, permit rampant crime and corruption, and voila, your currency will appreciate and your buying power sky rockets. I guess we are doing things all wrong in the USA. If Brazil is the model, Trump is spot on.

  2. bond holders might like this, but everyone else will suffer…a stronger real will reduce export markets at a time when domestic markets are so burdened with debt that no growth is possible…the Brazilian economy is headed for a catastrophic collapse.

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