By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – The foreign exchange market in Brazil closed down on the first business day of the new year, with the US dollar appreciating against the Brazilian real by 2.17 percent. The Brazilian real closed on Monday (January 4th) at R$4.034/US$1, the lowest value of the Brazilian currency since September 29th, 2015.
In a very volatile day, the Brazilian real dropped as low as R$4.06/US$1 before settling at R$4.034/US$1. The depreciation of the Brazilian real was seen as a reaction to negative news coming from China, the turbulence seen between Iran and Saudi Arabia and the pessimism in relation to the Brazilian political scenario in the coming months.
According to analysts, the delay by Congress in approving economic measures that the government hopes will help balance the country’s fiscal scenario as well as the discussion surrounding the possible start of impeachment proceedings against President Dilma Rousseff has made markets uneasy at the start of the year.
Congressional representatives are in recess and will only return to work in the beginning of February. Without the needed economic measures wanted by the government, analysts say that the markets will remain volatile in January, being easily affected by international turbulence.
Yet not all is negative with the appreciation of the U.S. currency. According to Amit Ramnani, director of Ipanema Wealth, an independent financial consultancy firm working out of Rio de Janeiro, this is a good time for foreigners to invest in Brazil. “Could the Brazilian real depreciate further?” he ponders, “yes, it could but you would have to be very courageous to wait and try to guess the weakest level to be reached (for the Brazilian real).”
Neil Shearing, Chief Emerging Markets Economist at Capital Economics, said “While most of the bad news is surely priced into financial markets, weaker economic forecasts point to weaker asset prices. We are lowering our end-2016 forecast for the real to R$4.25/US$1 (previously R$3.65/US$1) and our end-2016 forecast for the Bovespa equity index to 45,000 (previously 47,500).”