Dollar Records 6.6 Percent Weekly Drop, Closes Below R$5 for First Time Since March

RIO DE JANEIRO, BRAZIL – The dollar again closed down sharply after the United States surprisingly recorded a drop in unemployment in May. The result was considered one of the best in history, given the circumstances. As a result, the US currency broke the R$5 barrier and closed below this level for the first time since March 26th.

On Friday, June 5th, the dollar dropped 2.8 percent and closed at R$ 4.988. During the week, depreciation stood at 6.6 percent. The tourism dollar retreated by three percent to R$5.24.

Yesterday morning, the US Labor Department released the May payroll report, which pointed to growth in the labor market, taking the markets by surprise. While the loss of up to eight million jobs was expected, 2.5 million were created, reducing the unemployment rate from 14.7 to 13.3 percent. According to market projections, unemployment would hike to 19.7 percent.

“It was the best payroll in history. Absolutely everyone missed [the projections]. All the analysts were very wrong,” said Jason Vieira, chief economist at Infinity Asset. According to him, this was possible due to the dynamics of the American labor market. “There they destroy and create jobs very fast.”

“The numbers turned out to be much better. A severe drop in the labor market was expected. The difference was ten million jobs. The market is lively and with an energy that hasn’t been seen in a long time,” says Pablo Spyer, Mirae’s director. “The Real is the currency with the highest implied volatility in the world. So it’s only natural to experience these bumps,” he explains.

Around the world, investors have also echoed the stimulus packages from central banks and governments. The day before, the European Central Bank (ECB) extended its bond purchase program from €750 (US$846) billion to €1.35 trillion. The market also expects new incentives from the United States.

According to Bloomberg, members of President Donald Trump’s staff expect the government to spend over US$1 trillion to mitigate the economic impacts of the coronavirus. But according to the news agency, the government stimulus is expected to be implemented only as of next month.

Thus, the foreign agenda is responsible for the optimism in the exchange market. “In Brazil, the situation is still very complex, with a growing death toll from the novel coronavirus,” says Cristiane Quartaroli, an economist at Ourinvest. “Local economic data is starting to come in very poorly, as in the case of vehicle production, not to mention that the political factor has not helped much,” she adds.

Fernando Bergallo, president of FB Capital, considers the foreign scenario to have a weight of 4 on the exchange rate, while the domestic scenario has a weight of 1. “It’s even a paradox that the dollar fell to below R$5 a day after Brazil registered record deaths from coronavirus. If the world is positive, it could be poor here anyway. Out there it’s the economic driver,” he said.

Source: Exame