Dollar rises and approaches R$5.10; understand the rise of the currency

The dollar advanced against the real this Wednesday, quoted close to R$5.10, with investors reacting to higher-than-expected employment data in the US, which reinforces doubts about the beginning of the interest rate easing cycle in the US.

Around 11:20 am, the spot dollar rose 0.48%, to R$5.089 on sale. The highest price of the day so far reached R$5.09. See the quote here.

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On B3, the first-month dollar futures contract rose 0.16%, to 5.0905 reais.

The day before, the dollar in cash closed the day at R$5.0589 on sale, stable, but still at the highest closing value since October 13 last year after having accumulated an increase of 1.57% in the previous two days .

External and domestic scenario

184,000 jobs were opened in the private sector in the United States last month, after 155,000 in February in revised data, according to an ADP report. Economists consulted by Reuters predicted the creation of 148,000 jobs last month. The data reinforces continued strength in the labor market and gives more reason for the Federal Reserve to be cautious in defining the start of its monetary easing.

Additionally, keeping investors cautious, US services sector activity data will be published later on Wednesday.

On the internal agenda, industrial production fell 0.3% in February compared to January, marking the second month in a row in the red and raising a warning signal.

“Maybe people are looking at the internal side here, our fiscal issue, but what is really weighing is the scenario abroad: the issue of American interest rates and, now, this dose of the geopolitical issue”, said Hideaki Iha, operator at Fair Broker, about the recent dollar rally.

Recently, traders have reduced bets on a start in June of the Fed’s monetary easing, as well as projections of total easing to be promoted by the central bank this year.

“What is stopping the Fed from cutting interest rates? It’s inflation, so, with that, this rising oil makes the scenario worse”, said Iha.

Oil prices extended their gains this Wednesday, with Brent approaching $90 per barrel, amid supply risks arising from Ukrainian attacks on Russian refineries and the potential for escalation of the conflict in the Middle East.

In addition to benefiting from the effects of the rise in oil prices on global inflation – something that tends to favor the scenario of a stricter Fed –, the dollar tends to be boosted by geopolitical tension itself, as investors fill their portfolios with safe assets to protect themselves. prevent possible escalations in conflicts.

Iha told Reuters he does not expect new interventions from the Central Bank in the foreign exchange market, although he continues to monitor the authority’s movements. The day before, the BC held an extra auction of 20,000 traditional currency swap contracts, the effect of which is equivalent to the sale of dollars on the futures market.

The BC said that the operation aimed to meet the demand generated by the redemption of the NTN-A3 bond, linked to the exchange rate, scheduled for April 15, but some professionals considered that the institution may have used the moment to contain a greater rise in the dollar. .

The Central Bank decided last month to make a further reduction of 0.50 percentage points in the Selic rate, to 10.75% per year, but shortened its indication on future cuts by citing an increase in uncertainty, stating that its board foresees a cut in the same intensity only at the next meeting, in May.

Will it go up more?

Despite the upward movement of the dollar, the scenario expected by market analysts for the Brazilian exchange rate remains stable, according to this week’s Focus report. The estimate for the exchange rate at the end of 2024 remained at R$4.95, compared to R$4.93 a month earlier. For 2025, the median remained at R$5.00 for the 12th week in a row.

The annual exchange rate projection published in Focus is calculated based on the average for the rate in the month of December, and no longer on the value projected for the last business day of each year, as it was until 2020. With this, the Central Bank hopes to bring greater accuracy for financial market exchange rate projections.