Dollar climbs to R$5.29 with negative risks abroad and in Brazil, then subsides

RIO DE JANEIRO, BRAZIL – Shortly before 10:15 AM, the dollar was up 0.16% at R$5.2537 on the spot exchange market, after hitting a high of R$5.2972. With investors looking for safety assets, the U.S. currency appreciated against strong currencies and compared to most of the emerging currency pairs of the Brazilian real.

In the interest rate futures market, the rate of the Interbank Deposit (DI) contract for January 2022 rose from 6.63% in the last adjustment to 6.595% and the DI for January 2023 increased from 8.34% to 8.36%; the contract for January 2025 increased from 9.40% to 9.42% and the DI for January 2027 from 9.82% to 9.83%.

“Risk aversion predominates and markets are starting the week in the negative range,” says Bradesco in its daily report. The bank points out that the results of China’s lower-than-expected indicators are weighing on business, after industrial production and retail sales in July grew less than expected on the margin, supporting the perception of loss of traction in the world’s 2nd largest economy.

Moreover, the rise in cases of the Delta Covid-19 variant in the US, the UK, and Asian countries, which could slow down the global cyclical rebound is also a concern for the market, Bradesco says.

Escalating tension between the Executive and the Judiciary is adding to the caution with Brazilian assets, after president Jair Bolsonaro over the weekend announced that he will request the Federal Senate to initiate proceedings against Supreme Court Justices Alexandre de Moraes and Luís Roberto Barroso.

The political front also holds an important agenda in the National Congress, which tends to keep local assets under pressure. The vote on the Income Tax reform, scheduled for tomorrow, and the definition for court-order debt, with measures that may undermine the spending cap, are in investors’ focus.

Last Friday, Economy Minister Paulo Guedes stated that without the adoption of rules for the payment in installments of federal court-ordered debts, the government will have to suspend the operation of public agencies and even the payment of public servants’ salaries.

According to him, the main resistance to the changes the government has proposed in the income tax rules comes from those he refers to as the “super rich.”