The economic environment has been more positive. The approval of the Pension Reform confirmed this sentiment and eventually translated into a significant drop in the dollar. The cut in interest rates by central banks and the improvement in the external outlook eventually intensified the downward movement of the dollar, which closed last Friday (01) below the level of BRL 4.00, sold at BRL 3.9980. The dollar fell 0.29% last week and 3.42% in October.
It is good to remember that in recent months for three times the US currency unsuccessfully tested the resistance of BRL 4.20. Albeit timid, the signs of recovery in the Brazilian economy must continue to weigh on the exchange rate. More positive data on China’s industry as well as on the US labor market weighed against the dollar. But a cheap dollar against the real ended up stimulating purchases. In addition, there is great expectation towards the mega auction for the pre-salt oil concession this week, which may result in a considerable inflow of foreign funds.
Confirmation of interest rate cuts by the Fed and Brazil’s Central Bank adds pressure on the dollar. Doubts about a broader US-China trade agreement and vagueness about the Brexit hold back the selling momentum. The Fed cut interest rates for the third time this year, reducing them by 0.25% to 1.50% to 1.75% a year. But the Fed signaled it will not cut interest rates at its next meeting, preferring to reassess the economy before new changes.
In Brazil the Copom cut interest rates by 0.5%, with the Selic rate falling to 5% a year and renewing the historical low. Interest rates are still projected at 4.5% for the end of 2019 and at 4.0% in 2020.