Dollar opens the week at R$5.05, the highest in six months; Brazilian stock exchange closes down

The dollar registered an increase in trading this Monday (1st), after the release of important data measuring the temperature of the American economy. The currency closed with an appreciation of 0.87%, quoted at R$5.059. It is the biggest increase recorded in six months, when trading ended on October 13th at R$5,089.

Ibovespa, the main index on the Brazilian Stock Exchange, closed down 0.87%, at 126,990 points. The biggest increases were from Hapvida (HAPV3), with 6.49%, and IRB Brasil (IRBR3), at 2.44%.

At the other end, LWSA (LWSA3) and CVC (CVCB3) suffered negative performance of -6.34% and -5.86%, respectively.

With relevance in the weight of the index, Petrobras and Vale closed the day with a slight positive variation. The oil company’s shares ended the trading session with an increase of 0.75% (PETR4) and 0.5% (PETR3), while the mining company registered an increase of 0.46%.

The reason for the appreciation of the American currency was the release of the purchasing managers index (PMI) for US industry. There was a jump in the data in March, after 16 consecutive months of decline, going from 47.8 in February to 50.1 points.

“The numbers suggest economic activity is still strong, putting pressure on interest rate expectations and strengthening the dollar. This week, we will also have the release of data that could provide greater clues about the conduct of monetary policy in the coming months”, says Leandro Ormond, analyst at Aware Investments.

central bank

The Central Bank announced that it will hold an additional “currency swap” auction this Tuesday (2). This operation means selling dollars on the futures market, without necessarily affecting the country’s reserves.

The intervention — the first in the Lula government — was announced on a day in which the North American currency was quoted at R$5.06. Swap contracts, even though they are offered on the futures market, influence the dollar exchange rate on the spot market.

The operation is used by the Central Bank to avoid strong variations in the foreign exchange market.

The Central Bank explained that this is necessary given the effects of the redemption of National Treasury Notes, subseries A3 (NTN-A3), which are exchange-linked securities.

The redemption date is scheduled for April 15th.

In the auction, the BC specifies the volume of contracts and the swap rate. Market participants (such as banks and other financial institutions) then bid based on these contracts.

Once agreed, the contracts have a predetermined expiration date, when the financial adjustment between the parties will take place, based on the variation in the exchange rate and interest rates involved.

If the real depreciates in relation to the foreign currency, the central bank pays the difference to the contract holders; If the real appreciates, contract holders pay the difference to the BC.

This mechanism allows indirect intervention in the foreign exchange market, with impacts on the exchange rate without affecting the country’s foreign currency reserves.