Dollar rises slightly with an eye on spending to help RS and waiting for Copom

In a session marked by instability and changing signals, the dollar in cash closed at R$5.0741, up 0.08%. According to traders, the day was one of accommodation and moderate position adjustments, after the currency fell 2.36% in the last two trading sessions, given the prospect of an interest rate cut in the US this year. Despite the steady decline of the dollar in relation to currencies similar to the real, especially Latin American ones, the Brazilian currency showed reduced strength due to the increase in uncertainty in the domestic situation.

Investors are still considering the possible economic consequences caused by the flood tragedy in Rio Grande do Sul, such as an increase in public spending and additional pressure on inflation in the short term. There is also little appetite for more decisive bets amid the wait for the decision of the Central Bank’s Monetary Policy Committee (Copom) this Wednesday, 8th.

The cautious environment translates into reduced liquidity and modest fluctuations. There was a variation of just over three cents between the maximum (R$ 5.0918), in the morning, and the minimum (R$ 5.0608), in the afternoon. The main thermometer of business appetite, the dollar futures contract for June had weak turnover even for a Monday, below US$ 10 billion.

“There is already concern at the operating tables about the impact of the Rio Grande do Sul catastrophe on the economy, especially in agribusiness. They are discussing in Congress the release of resources to help the State recover”, says the foreign exchange manager at Treviso Corretora, Reginaldo Galhardo. “The issue is that we do not know what the impact will be on public accounts and, consequently, on fiscal balance. This tends to leave the market on the defensive.”

Sources heard by Broadcast say that the government wants to help Rio Grande do Sul, but without having to put the fiscal area at risk. Apparently, what should happen is the permission of extraordinary credits that will be controlled at the outset and inspected later. The Minister of Planning, Simone Tebet, stated on her social networks that it will not be necessary to change the Constitution or laws for the Union to help Rio Grande do Sul.

In the afternoon, the president of the Senate, Rodrigo Pacheco (PSD-MG), suggested the approval of a Proposed Amendment to the Constitution (PEC) in the format adopted during the Covid-19 pandemic to release resources to Rio Grande do Sul. In the same line, the PT National Executive published a note expressing support for the approval of PEC along the lines of the pandemic, when there was the so-called “war budget”.

President Lua announced late in the afternoon that he will issue a Legislative Decree Project (PDL) providing resources to help with the recovery of Rio Grande do Sul. The mechanism provides support for the subsequent release of extraordinary credits to be made outside the target result primary.

Abroad, the DXY index – which measures the performance of the dollar in relation to a basket of six strong currencies – operated slightly higher, due to the yen’s losses. Euro and pound showed slight gains compared to the American currency. With the appreciation of commodities, especially iron ore, and the predominant sign of falling Treasury rates, most emerging currencies appreciated, but reduced their gains at the end of the day.

“Friday’s payroll encouraged the market and added to the improvement in Brazil’s rating outlook. This brought the dollar down and should make the rate fluctuate between R$5.05 and R$5.10”, says the chief economist at Frente Corretora, Fabrizio Velloni, in reference to the US employment report and the fact that the risk rating agency Moody’s changed the outlook for Brazil’s rating (Ba2) from stable to positive. “We have a domestic scenario that is still cloudy, but there was an external improvement last week that could help the real.”