Dollar and interest rate futures rise in early trading; Brazil risk and services data key

RIO DE JANEIRO, BRAZIL – The dollar and the interest rate futures are posting rises on Thursday (12), as financial markets reflect the suspension of the vote on the income tax reform (IR) in the Chamber of Deputies and uncertainty surrounding the trajectory of public accounts, in addition to the better-than-expected figures for the services sector in June.

At 10:10 AM, the commercial dollar was up 0.38% to R$5.2417, after peaking at R$5.2432 and hitting a low of R$5.2142. Abroad, the ICE Dollar Index (DXY) – that compares the American currency to strong rivals such as the euro, pound and yen – was stable, while the U.S. dollar showed mixed signals against emerging market currencies.

Interest rates also operated with an upward bias, pressured by better-than-expected data from the services sector and waiting for the Federal Treasury’s auction of fixed-rate bonds.

The data gain relevance while the Central Bank (BC) suggests that the rise in service prices, amid the progress of vaccination, is a risk to the de-anchoring of inflation expectations for 2022. To prevent such expectations from advancing, the Central Bank’s Monetary Policy Committee (COPOM) stepped up the pace of the SELIC increase to 1 percentage point last week.

At the above time, the rate of Interbank Deposit Futures (DI) contract for January 2022 rose from 6.52% in the previous adjustment to 6.56%; the DI for January 2023 advanced from 8.13% to 8.20%; the contract for January 2025 increased from 9.08% to 9.18% and the DI for January 2027 from 9.48% to 9.56%.

Commcor assesses that the political and fiscal aspects of the domestic scenario raise the possibility of “speculative movements and the addition of risk premium, which can be quickly reverted in a potential improvement of the situation.”

In addition to the frustration over the IR reform vote in the Chamber, perceptions of difficulties regarding the progress of the reform agenda and fiscal risks associated with the size of the new Bolsa Família (Family Grant) and the maintenance of the spending cap are still in investors’ sights.

“We remain in a delicate scenario for now, even with Congress ‘ripping’ any chance of the printed vote becoming a reality again,” the brokerage points out. The institution also recalls that the Covid CPI (investigative committee) and the fake news inquiry are moving on president Jair Bolsonaro, leading him to remain on the defensive.

Today, the government leader in the Chamber, deputy Ricardo Barros, will testify before the CPI. Barros had been quoted by the president in alleged irregularities about the purchase of the Indian Covaxin vaccine.