Brazil: Real regains value, rises to near three-month high in August
August 8, 2017
The Brazilian real (BRL) rallied to the strongest value since May in August, after a volatile few months dominated by worsening political instability in the country. On 2 August, the real closed the day at 3.11 BRL per USD, which represented a sharp 5.7% appreciation over the same day of the previous month. As of that date, the real had gained 4.3% year-to-date and was 4.4% stronger in value compared to the same day last year.
A mix of political developments, rising commodity prices and changing expectations over the United States’ tightening monetary cycle have combined to push the real higher. On the political front, the scene became more stable this month after the lower house of Congress shot down a motion to put President Michel Temer on trial for corruption, avoiding a repeat of Dilma Rousseff’s fate. While Temer is not out of the woods yet and could see another corruption-related accusation, the move boosted market sentiment that the government has enough support for now to move ahead with badly-needed reforms and provided support to the real. Along with the positive political development, rising prices for key commodities have helped the real gain in value along with a relatively weak U.S. dollar due to changing expectations over the Federal Reserve’s next move.
In light of recent events, a number of our analysts reexamined their forecasts for the real this month. Commenting on Pezco’s outlook, Head of Research Helcio S. Takeda elaborates:
“We turned bullish again on BRL, with increasing probability pension reform may get passed on Congress during 2H17. Besides, we think USD will not further strengthening against major currencies and EM currencies, even under FED’s balance sheet unwinding process – which should be very gradual.”