After a period of considerable stability in which the exchange rate fluctuated within the range between R$4.90 and 5.00, the dollar soared and reached R$5.30 on April 16.
Three major factors explain this movement. Firstly, recent data reinforces the difficulty of completing the disinflation process in the USA. As a result, bets for the start of the interest rate cut cycle were from June to the end of the year or 2025, with smaller cuts. High interest rates in the US end up directing resources there (particularly in low-risk assets).
Secondly, the intensification of conflicts in the Middle East, following Iran’s direct attack on Israel, has increased uncertainty. Whether due to the possibility of difficulties in the supply of oil, obstacles to international trade routes or the potential for the conflict to escalate, the scenario also stimulates the search for lower risk assets.
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Finally, changes in Brazilian fiscal policy played a central role. By announcing that the surplus target of 0.5% of GDP will give way to zero deficit in 2025, the government contributed to increasing market distrust, which reacted with an outflow of resources.
Given the complexity of the context, the classic question “how far does the dollar go” is not the most correct one to ask. In a moderately optimistic scenario, including a drop in interest rates in the US this year, relative geopolitical stability and some recovery of credibility in domestic economic policy, it would be compatible with the gradual return of the exchange rate to close to R$5.00 per dollar. In the most stressed scenario, the conversion could approach R$6.00.
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Therefore, the most pertinent question is: is my portfolio adequate to the volatility of the foreign exchange market? Even after recent movements, having a strategic positioning in dollars and dollarized assets in your portfolio remains the best way to seek protection against exchange rate volatility. If you don’t already have global investments, the best time to start is always now.
*Caio Fasanella is executive director and head of investment at Nomad
** Danilo Igliori is chief economist at Nomad
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