The month of April isn’t even over yet and the real is already the currency which has depreciated the most in relation to the dollar in comparison between the countries of G20 — group formed by the largest economies in the world — according to BBC News Brazil.
On April 16th the dollar surge scared Brazilian investors. The North American currency was quoted at R$ 5.29.
In the second half of April, the devaluation of the real reached 4.5% against the American currency. The performance was even worse than that of the Argentine Peso, which devalued around 1.38% in the same period.
The impacts were not only on the exchange rate: the rise of the dollar against the real also affected the brazilian scholarship. From the beginning of April until the last closing (24) the Ibovespa already fell 2%.
Why did the real lose so much value against the dollar?
It is not new that the real is devalued compared to the dollar. However, throughout the month of April the US currency once again reached levels that had not been seen since March 2023.
Part of the real’s poor performance is due to a dollar appreciation globally. O DXY, index that measures the performance of the dollar in relation to a basket of currencies, already records increase of 1.26% in April.
At the same time, the Brazilian currency in fact weakened in relation to the dollar. Between April 1st and the last closing date (24th) the price of the North American currency appreciated positive in 2.6%.
According to analysts, the devaluation of the real in recent days was motivated by three factors.
1. High interest rates for longer in the US
The data from inflation of the United States, released at the beginning of the month showed that the pace of consumption there still continues at a rapid pace.
This means that the American Central Bank must keep the basic interest rate high longer. This dynamic tends to cause the real to lose value against the dollar.
It turns out that high interest rates imply a higher rate of return us Treasuries. In this scenario, many investors prefer to keep their dollars invested in the safest asset in the world, United States government bonds.
Consequently, this choice of foreign investors results in a scarcity dollar in the Brazilian market and an appreciation of the currency against the real.
2. Intensification of conflicts in the Middle East
The month of April will also be marked by the entry of Will in the war between Israel and the Hamas.
The country’s attack on Israeli territory raised fears of an escalation of the conflict in Israel. Middle East. Among the concerns is the oil supply since Iran has the fourth largest reserves in the world and, in addition, could block the flow of the commodity through the Strait of Hormuz.
It is also worth remembering that Iran has a nuclear program and the International Atomic Energy Agency (IAEA) has already confirmed the country’s capacity to build multiple atomic bombs.
The dollar is considered one of the safest currencies in the world. Therefore, in situations of uncertainty and conflict, such as the dispute in the Middle East, many investors rush to increase their allocation to the currency, causing it to appreciate even more.
3. Fiscal policy
Finally, the change in fiscal target of Brazil for 2025 also affects the dynamics between the real and the dollar. Recently, the economy minister, Fernando Haddadannounced that next year the government will seek a zero deficit instead of a surplus of 0.5% of GDPas predicted in the previous text.
This change was received negatively by the market as it may indicate that the government intend to spend more next year, increasing the public debt.
With this the Brazil risk it also gets bigger, which makes foreign investors not want to bring their capital to the country. As a consequence, the real tends to depreciate.
Given this context, the question many investors ask is:
How to protect assets from the devaluation of the real?
Empiricus Research international equity analyst, Enzo Pachecopoints out that one of the best ways to protect assets at this time is invest in dollars.
As I explained previously, in difficult scenarios the US currency tends to to value and whoever has the asset in their portfolio can mitigate losses caused by other factors, such as the devaluation of the real.
Precisely for this reason the dollar is considered a “safe haven”, not only for individual investors, but also for global banks.
But if you’ve never invested in dollars, you may have questions about how to start and the best way to do it. With that in mind, Enzo prepared a complete material to invest in the currency.
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