Dollar tests historical highs again

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The dollar has surged, breaking the reference of BRL 4.30 to close Friday sold at BRL 4.3220. Now the dollar closed the first week of February, accumulating an increase of 0.81% and continuing the rally started in January. This year the US currency went up 6.8%.

Higher than expected figures on the US labor market supported the dollar. 225 thousand new vacancies were created in January, well above the 158 thousand expected by the market. The data reinforce the signs of recovery in the US economy and help the dollar appreciate against its peers. The ‘dollar index’ rose again and reached 98.71 points. The emerging currencies stood out, suffering from the spread of coronavirus and decrease in economic activity in China. The CRB commodity index has accumulated losses of more than 8% since the beginning of the year.

The exchange rate also reflects the new 0.25% cut in interest rates here in Brazil. The Selic rate fell to 4.25% a year, and the market bets even more on a new cut in March, which would bring the rate to 4% a year. Low interest rates in Brazil reduce international interest arbitrage with Brazil, which favors the outflow of dollars and weighs against the real. And the Central Bank remains outside of the market.

China’s central bank, in turn, injected liquidity into the market, seeking to ease some tensions. And that served to encourage corrections, especially in Asian markets. In any case, caution goes on. While the virus is not controlled, Chinese activity will remain compromised, and negative economic indications will persist, thus negatively impacting global markets.

The market must remain linked to the evolution of coronavirus and its effects on the Chinese and world economies. For this reason, it is important to keep a close eye on exchange rate opportunities, with the dollar breaking a record high against the real.