by José de Castro
SAO PAULO (Reuters) – The dollar continued to fall on Tuesday, in the third straight trading session and to lows in almost eight months, with the currency reaching 5.04 reais as global investors returned to privilege higher interest currencies linked to commodities.
The market still had breath to drop the dollar to new lows at the end of the session, as foreign assets improved in signal amid statements by US President Joe Biden about geopolitical tensions around Russia, Ukraine and the West.
The spot dollar closed down 1.08%, at 5.051 reais on sale. It is the lowest value since July 1 of last year (5.0447 reais). The price varied on the day from BRL 5.109 (+0.06%) to BRL 5.0445 (-1.20%).
From the chart, levels around 5.0400 reais (intraday low at the end of July 2021) and between 4.9500 reais and 5.0000 reais would be important supports to be broken at this time.
In February, the dollar retreated 4.80%, intensifying the fall in 2022 to 9.37%. The real has the best performance in the month and year among the main currencies.
The dollar also lost ground on Tuesday in other markets such as Chile, Colombia and South Africa – all commodity-exporting countries, which are rallying amid a combination of restrictions still related to the pandemic and geopolitical tensions.
The higher the prices of commodities, the more money tends to flow into the countries that export them, thus increasing the supply of foreign currency – which plays in favor of a lower dollar.
Even the Russian ruble rallied on Tuesday, up 1.9% in the late afternoon, after suffering sales due to the escalation of tempers between Russia, Ukraine and the West.
For the time being, the geopolitical crisis has not altered the dynamics of rotating flows to emerging markets, where at the moment investors see more attractive valuations.
Brazil has been prominent in the global rotation of flows, but neighboring Chile – which also boasts higher interest rates and benefits from higher commodity prices – is among the attractive markets at the moment. The Chilean peso appreciated 0.7% in this session and jumped 7.6% in 2022, the second best global performance, second only to the Brazilian currency.
The preference for specific markets is explained by a number of factors. In general terms, India is by some accounts “stretched” – the rupee loses 0.3% against the dollar in the year –, while in China there are fears of regulatory tightening – just to name a few examples.
“It’s directing the flow to where there are more opportunities for gain”, commented a professional in the foreign exchange area of a foreign bank. “This is trivial: if the interest covers the exchange rate risk that internalizes the inflation differential, it is worth it – in this case, rising commodities and interest rate opportunities for those who have ‘hedge’ (protection)”, he added.
At an event this Tuesday, the president of the Central Bank, Roberto Campos Neto, endorsed this narrative by saying that the Brazilian exchange rate has been supported by a combination of higher interest rates, a benign surprise on the fiscal side and asset rotation, which has generated a perception among investors that it is “important to enter now”.
He recalled that the purchases of dollars made last year by investors to adapt to a change in the overhedge taxation rules also stopped weighing on the real.
The political-economic news from Brasília served as a positive backdrop to the foreign exchange market in this session.
The president of the Chamber, Arthur Lira (PP-AL), said this Tuesday that Congress will try to maintain a rhythm of voting this year, despite the elections, but will not make any move that could bring economic instability, mess with the spending or affect the country’s exchange rate or growth.
He also stated that the Proposed Amendments to the Constitution (PECs) that deal with fuel taxation are currently discarded and Congress will focus on approving PLP 110, which is in the Senate.
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