After interventions by the Central Bank (BC) a few weeks ago, the dollar it had a new driver to push its price up more recently: the loosening of the fiscal target by the Federal Government.
By estimating a primary surplus only in 2026, the government lost credibility with the market – a scenario that caused the stock market to fall and the dollar rise up to the highest level in more than 12 months, at a level of R$5.30.
The scenario made analysts appear a little more pessimistic with the exchangeincluding increases in projections reflected in the Focus Bulletin, the last edition of which showed an increase in projections from 2024 to 2027, with expectations of R$5 for 2024, R$5.05 for 2025 and R$5.10 for the two subsequent years.
Gustavo Sung, chief economist at Suno, highlights that even if the market was already skeptical about the possibility of a surplus in the short term, the movement still causes the Treasury to fall into discredit and put pressure on prices.
“Although the market already saw that the government would not be able to meet the established goals, it was important that the government kept its promise, its attempt to achieve”, he explains.
“To avoid a leg of privilege in the new framework and some recent signs that the collection measures could be running out, Simone Tebet’s measures, Haddad’s measures, that list must be decreasing, and they are also not attacking much on the side of expenditure, so this fiscal risk that permeates our scenario has increased due to changes in targets and this puts pressure on the exchange rate”, he adds.
Furthermore, Sung adds that in the past, the tension between Israel and Iran also influenced the exchange rate – which contributed to the dollar exchange rate remain at the level of R$ 5.30 – but now it is “an issue in the background, because tensions have already reduced”.
With this, the economist emphasizes that at the moment the dollar is closer to R$5 than R$5.30, and the shocks were very short-term.
“When we assimilate the information and the shocks begin to dissipate, the exchange rate appreciates again and falls to a slightly lower level. Today, for example, it is already R$5.10”, he explains.
Diego Costa, head of exchange for the North and Northeast of B&T Câmbio, comments that the approval of the tax reform regulatory text and the statements by Lula and Haddad highlighting the importance of a harmonious relationship between the powers for the progress of fiscal issues contributed to further pacify this situation, at least for now.
“In this scenario, this could help to reduce investors’ distrust in relation to the government’s commitment to public finances. On the other hand, while the external scenario requires a more cautious reading of monetary policy, here in Brazil, the Government continues to pressure the Central Bank and Campos Neto not to reduce the pace of cutting the Selic rate”, he points out.
The expert also makes comments that are in line with what Sung says, that investors begin to price risks as the news calms down, giving space once again for the repercussion of indicators and their implications for the future, such as inflation and the trajectory of interest rates.
With this, Costa comments that in the absence of significant surprises, “it is reasonable to think of a dollar oscillating between R$5.10 and R$5.20”.
Fed remains on the radar and should move the dollar in 2024
In addition to geopolitical and fiscal factors, movements by the Federal Reserve (Fed) should also continue to be relevant indicators for the exchange rate.
BTG Pactual analysts highlight that, in April, Fed members showed a significantly more hawkish stance – they were cautious and still demanding more data to opt for the start of the cutting cycle.
“In this way, therefore, the repricing of the monetary cycle was notable in the North American interest curve, which is currently divided over the monetary cooling cycle starting in June. As a result, the strong growth scenario, together with the prospects of higher interest rates for longer, were fundamental for the dollar to gain strength in the period”, says the house.
“For the short term, we understand that this market perception should continue, especially because, in addition to the still attractive carry, all else being equal, Fed members should not relax their speeches until the next FOMC meeting (01/May), vector which can continue to prevent the currency from losing strength against its main pairs (DXY)”, he adds.
A dollar projection of the house is R$ 4.85 for the end of the year.
Sung, from Suno Research, highlights that North American fixed income at the 10-year interest rate is paying more than 4.60%.
“This attracts dollar capital to the United States and ends up reflecting our exchange rate here”, he explains.
The expert draws attention to the fact that the market’s greatest concern is when the American monetary authority will have the security to start the cycle of cuts.
“It was March, the expectation went to June, now it is in the second semester. This lack of definition increases the risk aversion of investors looking for safer assets,” he highlights.
Regarding the triggers that could bring the dollar and its projections below R$5 again, Suno’s chief economist describes a scenario without approval of bomb agendas, with a safer Copom to cut interest rates, more fiscal commitment, good governance and also more clarity on the Fed’s upcoming decisions.
