Volatile and firm dollar in Brazil with lack of external direction

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     Porto Alegre, September 14, 2020 – Volatile foreign market, showing difficulty in finding a direction. Traders are still absorbing the Nasdaq tumble, which has dragged other global equity markets down. They still try to understand whether this is an adjustment in the trajectory or a more consistent realignment in the market curve. The answer is linked to the vision regarding the recovery of global activity. The lower price of equities ended up motivating purchases, generating a chain reaction in markets. But the gains were modest and inconsistent, justifying caution.

     The cumulative decline in crude oil prices in this first third of September, given the slowdown in Chinese demand, still maintains pressure on the CRB commodity index. On the radar, the commercial tension between the United States and China and the evolution of decisions about the Brexit format. In general, external caution prevails, which is translated into support to the dollar index in September. The U.S. currency closed Friday at BRL 5.3360 (+0.30%), accumulating gains of 0.53% against the real over the week.

     Traders digest the data on the U.S. labor market and the second quarter GDPs and continue to project the second half of 2020 with recovery, but perhaps with less optimism than a few weeks ago. This can drive to a realignment in markets and influence the internal scene, contaminated by the caution surrounding the reforms and fiscal fears.

     Generally speaking, investors once again raised their guard, which helps sustain the dollar. The outlook is for slower recovery of the economy and a slower pace of structural reforms. This ended up taking some of the market enthusiasm.

     This week, pay attention to the Fomc and Copom meeting. The Fed is not expected to make a major change, which must keep the prime interest rate close to zero. The expectation is for the first official meeting after the change in the monetary policy framework. Therefore, more attention to Jerome Powell’s speech. In the case of Brazil’s Central Bank, the market expects the Selic rate to remain at 2% per year, paying attention to the monetary authority’s stance in the face of signs of inflationary acceleration.

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