Rising real reflects positive external flow

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     Porto Alegre, February 22, 2022 – The dollar closed Friday sold at BRL 5.1410. The forex market was negatively influenced by the mild tone of the Fed’s minutes and, especially, by the high inflow of capital. Last week, the dollar accumulated a devaluation of 1.96%.

     The local currency continues to appreciate, reflecting the positive external flow, given the rise in commodity prices and the great external interest in cheap assets on B3. The rise in the Selic rate also favors carry-trade operations. Some agents even raised the projection for this year’s final Selic rate from 12.25% to 12.75%. Currently, the prime interest rate is 10.75% a year. The balance remains favorable for the real, justifying the downward sequence of the dollar.

     The domestic market remains detached from the external scene, taking advantage of the Fed’s lack of positioning. Overseas, the dollar index (DXY) rose to 96.02 points. Concerns about the crisis between Russia and Ukraine, and protection against the Monday holiday in the United States explain this realignment. But the expectation is that with the beginning of the cycle of highs in US interest rates, the dollar will regain strength also against the real.

     There is also concern over domestic uncertainties, such as fiscal fragility, elections, and weak economic indicators. Thus, although many consider that a balanced dollar should be below the level of BRL 5.00, few bet on this movement and continue to believe in the recovery of the US currency over the year. The latest Focus report projected the dollar at BRL 5.58 for the end of 2022.

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