by José de Castro
SAO PAULO (Reuters) – The dollar closed lower on Tuesday, reaching as low as 5.04 reais on the spot market, with investors echoing some relief abroad from mid-afternoon onwards while the news about the war in Ukraine remained in focus.
The US currency rose 0.44% in the morning, to 5.102 reais, staying close to that level for some time, after rehearsing low. After 14:00 (Brasília time), however, sales emerged significantly, bringing the price down to a minimum of 5.0452 reais (down 0.68%), shortly after 15:00.
At the close of trading on the spot market, the dollar dropped 0.50% to 5.0539 reais.
The move followed the rise of the euro and an attempt to rally equities, which have been suffering from the unfolding war in eastern Europe. The ruble – a thermometer of the crisis – jumped nearly 10% against the dollar, while Brent crude, which had soared 8.07% earlier, reduced the gain at the close to 3.87%.
Investors looked to confirmation that U.S. President Joe Biden on Tuesday banned imports of Russian oil and other energy sources in retaliation for the invasion of Ukraine, underscoring strong bipartisan support for a move he acknowledged would drive up energy prices in the US.
But information also circulated in the tables that Ukraine was no longer insisting on joining NATO, one of the reasons alleged by Russia to justify the conflict.
The market seems to now begin to divide attention to the war between Russia and Ukraine with other potentially unfavorable topics for the real. It is important to note that the dollar, after testing the 4.99 reais two weeks ago, was no longer able to break the 5.00 reais barrier. In addition, the price has since then made increasingly higher intraday lows, a fact that can be read as a certain exhaustion of the “short” in dollar terms.
BTG Pactual draws attention to the monetary policy meeting in the United States (with a result on the 16th) and the increasingly heated discussions here on fuel price subsidies, with a risk of significant fiscal impact.
For the bank, the combination of both tends to limit the entry of dollars to the search for valuable assets in the stock market and to carry out “carrego trades” – the so-called “carry trade”, a strategy in which investors buy derivatives in reais to profit from interest rate differentials.
“Furthermore, new developments in the domestic election race and possible growth in uncertainty from the conflict in Europe suggest that the Real will lose strength in the coming months,” they said.
“We expect the exchange rate to be R$5.40 at the end of this year and we continue to affirm that the current level represents an opportunity to protect portfolios from the turmoil that events in this year’s calendar should bring”, added the Macro & Bank strategy, which signs the report.
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