Brazilian Real: Dollar closes down 0.68% at R$5.1748

RIO DE JANEIRO, BRAZIL – The U.S. dollar closed down on Monday. The currency sales abroad extending to local operations in a day of regained appetite for risk and the eve of the monetary policy decision in the United States.

In general, the domestic forex market remains unstable, while investors also prepare for the Copom decision next week.

The spot dollar closed down 0.68%, at R$5.1748 on sale. The currency ranged from R$5.231 (+0.40%) to R$5.1522 (-1.11%).

Abroad, the dollar dropped 0.3% as a goodly number of currencies with similar profiles to the real gained ground.

Indicating greater demand for risky assets, stock markets in the US rose, gold fell, and oil closed higher.

The full focus of financial agents are on the signals to be given by the Federal Reserve (Fed) on Wednesday, especially when the market faces renewed fears of the pandemic and potential impact on an economy that produces higher inflation numbers.

Analysts at Citi expect the Fed to be broadly neutral and therefore see risk sentiment still positive, preferring to sell dollars at times of rising currency.

The dollar index is up 3.3% since the June lows. The global outlook for the currency is important for analyses about the performance of the real in Brazil due to the correlation between the currencies.

A report from Morgan Stanley shows that the Brazilian real has the highest beta (a sensitivity measure) against the dollar among a list of emerging currencies.

A week after the Fed’s decision, the Brazilian Monetary Policy Committee (Copom) will announce its decision on interest rates.

At the end of last week, the foreign exchange and stock markets in Brazil felt the shock seen in the DI contracts, which soared amid doubts about how the Central Bank will react to evidence of persistently high inflation, at a time when other emerging markets are promoting strong interest rate hikes against a backdrop of uncertainty about the Fed.

According to preliminary data, the interbank rates settled down in this session, and the Ibovespa stock index rose 0.76%.

For now, Morgan Stanley bets that the dollar will remain above R$5 in the short term, but with the Brazilian currency not being a relevant selling option.

“A more proactive Central Bank would likely partially contain a dollar/real rise,” strategists at the bank said in a note, in which they recommended selling dollar/real puts with a delta of 25 and a strike price of 5.00 reais per dollar.

Analysts drew attention on Monday to China after the country’s shares fell sharply in the early hours amid tightening regulatory siege by Beijing.

Société Générale assessed that a potential global bullish catalyst for the dollar would be a depreciation of the Chinese yuan, as speculation of a second reduction in compulsory deposits by the Asian country’s government increases the divergence between China’s and the US monetary policies, making it more dollar-friendly.

The yuan traded outside mainland China (“offshore”) was down 0.1% at 6.4830 per dollar in late afternoon trading.

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