By Luana Maria Benedito
SAO PAULO (Reuters) – The dollar fell for the fifth consecutive trading session against the real on Wednesday morning, with investors awaiting the conclusion of the Central Bank’s monetary policy meeting, amid expectations of a further sharp increase in the Selic rate.
The statement from the BC Monetary Policy Committee (Copom) will be announced after the markets close.
At 10:06 (Brasília time), the spot dollar was stable, at 5.2733 reais on sale.
On B3, at 10:06 am (GMT), the first-maturity dollar futures contract rose 0.12% to 5.3080 reais.
The US currency is already coming off a sequence of four consecutive trading sessions of devaluation, during which it accumulated a drop of 3.04%. On Tuesday, the dollar closed at 5.2732 reais on sale, the lowest since September 16 last year (5.2654).
According to André Digiacomo, interest rate and currency strategist for Latin America at BNP Paribas, this recent weakness is explained, in part, by expectations of a rise in the Selic.
A Reuters poll of economists showed the central bank is set to launch a third consecutive 1.5 percentage point hike in the benchmark interest rate on Wednesday, in a bid to minimize risks of further capital outflows as the U.S. Federal Reserve prepares to start tightening its own monetary policy.
Higher borrowing costs here increase the carry (returns offered by interest rate differentials) of the Brazilian currency. “Looking at the Selic rate today and the annual carryover of the real – around 10% – it is difficult, expensive, for investors to maintain negative positions in the currency”, explained Digiacomo.
In addition to benefiting from domestic factors, the real has also been riding the wave of risk appetite that has lifted commodities-linked and broader emerging market assets in recent days. On Wednesday, the Mexican peso and Chilean peso extended gains, as did the Australian dollar.
The recovery in riskier currencies reflects last year’s rout, which was difficult for many assets in developing countries, especially in Latin America, Digiacomo said. “The market got very long in dollars, and what we are seeing now is a correction.”
The dollar index against a basket of strong currencies, meanwhile, was down for the third consecutive trading session this morning, after reaching a high since mid-2020 last week.
Some market participants have attributed the currency’s recent cooling to adjustments in bets for interest rate hikes in the United States, amid doubts about how far the Federal Reserve will go in its attempt to tame inflation.
At the moment, the prevailing view is that the US central bank will raise borrowing costs by 0.25 percentage point five times this year, starting in March.
This, in general, is seen as positive for the dollar, as higher interest rates would increase the attractiveness of investing in US sovereign bonds, but Digiacomo said that he sees, in Brazil, factors that could protect the real from the impact of an eventual tightening. money in the world’s largest economy.
“In addition to the high Selic rate, we have other cushions: a current account at more sustainable levels, better terms of trade and high commodity prices,” said the BNP strategist.
In its latest scenario review, released in mid-December, the French bank projected an exchange rate of 5.60 reais per dollar at the end of this year.
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