Dollar drops more than 1% as Brazil’s credit outlook improves and after Fed By Reuters

By Luana Maria Benedito

SÃO PAULO (Reuters) – The market fell more than 1% this Thursday after the risk rating agency Moody’s raised Brazil’s credit outlook, while the international environment was favorable to risk after the Federal Reserve reinforced its view that it will cut interest rates this year.

At 10:10 am (Brasília time), the spot dollar fell 1.16%, to 5.1324 reais on sale. At B3 (BVMF:), the first maturity contract fell 1.33%, to 5.148 reais on sale.

Moody’s reaffirmed Brazil’s credit risk rating at Ba2 on Wednesday and changed the country’s outlook from “stable” to “positive”, according to a statement from the rating agency.

According to Moody’s, the change in outlook to “positive” is supported by the assessment that “more robust growth, combined with continued, albeit gradual, progress towards fiscal consolidation, could enable the stabilization of the country’s debt burden. Brazil”.

Several market participants cited this development as positive for Brazilian assets, although they highlighted that this does not mean it is possible to let down one’s guard regarding the country’s fiscal health, with Moody’s itself citing “fiscal solidity still relatively weak”.

Inter said in a report to clients that the fact that the Minister of Finance, Fernando Haddad, attributed the improvement in the credit outlook to the joint work of the Three Powers shows an intention to mitigate friction between the government and Congress. Institutional stability is a supporting factor for domestic risk appetite.

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Meanwhile, overseas, Fed officials unanimously decided Wednesday to keep interest rates in the 5.25% to 5.5% range they have been in since July. And although Fed Chair Jerome Powell has indicated that high inflation could delay the expected rate cut, he has refused to endorse discussions that the rate could actually be raised again.

Guilerme Esquelbek, from Correparti Corretora, said that Powell’s speech brought relief to international markets, which recently postponed or even discarded bets on monetary easing by the North American central bank this year.

Higher interest rates in the US play in favor of the dollar, as they make US yields more attractive to foreign investors.

On Friday, the U.S. nonfarm employment report will come into investors’ focus as it could provide more clues about the health of the economy and the need for rate cuts.

In the last session, the dollar in cash closed the day at 5.1927 reais on sale, up 1.52%.