Brazil: Real plunges in August amid market turmoil in Argentina and U.S.-China trade tensions
September 5, 2019
The Brazilian real weakened notably against the U.S. dollar in August, recording its worst month in four years, before recovering mildly at the start of September. On 6 September, the real ended the day at 4.06 per USD, a 2.5% depreciation from the same day in August. The result marked a 4.5% depreciation year-to-date but was broadly unchanged from the same day last year.
The weakening was driven as contagion from Argentina’s financial crisis spilled over and undermined appetite for the real, while the uncertain global economy and escalating trade tensions between the U.S. and China also caused investors to flee from riskier assets in the month. Moreover, market positioning also weighed on the currency, as did the expectation of lower interest rates in Brazil.
In order to stem the decline, the Central Bank sold dollars for the first time in a decade in August, selling USD 660 billion of reserves in the month.