Statements in defense of fiscal responsibility given by the mayor, Arthur Lira (PP-AL), eased the concerns of local investors, providing a strong burn of risk premium in the exchange rate and also in other domestic assets on Tuesday. Also counting on a favorable external environment, the dollar returned to operating below BRL 5.30 for the first time in nearly four weeks.
After falling practically without interruption during the first half of the trading session, the dollar ended up settling down and closed quoted at R$ 5.2616, down 2.20% and close to the intraday low of R$ 5.2481. This was the biggest daily retreat since the 2.32% drop recorded on March 31st. In that session, the US currency closed at BRL 5.6276.
The good performance was also helped from abroad, where a new gust of optimism in the markets resulted in the recovery of iron ore and oil prices, which ended up carrying the Asian and other stock markets upward. Even so, the real’s recovery was much higher than that observed by other emerging pairs — a sign that local relief was predominant. In relation to the Thai baht, the second best currency of the day, the dollar fell 1.10% at the closing time of the foreign exchange market in Brazil.
The American currency had already started the day in a steady decline here, but this bias was intensified after Lira’s (PP-AL) statements at an event organized by XP, a behavior also observed in other markets. The congressman, one of President Jair Bolsonaro’s main supporters, stated that there was no “and there will not be”, by the Congress, a sign of breaking with fiscal responsibility and that Auxílio Brasil is priced “within the ceiling”. Lira also stated that the reform of the Income Tax still needs to be negotiated and will not be put on the agenda this week.
“Clearly [o movimento dos ativos locais] it has a lot to do with Lira’s lines. It is the sign that the market needed that the problems in Brazil are trying to be resolved”, says the technical analyst at Ativa Investimentos, Lucas Xavier.
According to Alfredo Menezes, a partner at Armor Capital, the Chamber’s president’s comments comprise a set of gestures aimed at reducing the boiling point in Brasília, which also helps to reduce uncertainties and makes room for realization in some assets. On the other hand, despite the relief seen today, caution tends to persist, assesses the professional. “I think he will always be afraid of what the movement will be like on September 7th”, he ponders, referring to the acts called in support of President Jair Bolsonaro on the Brazilian Independence Day holiday.
The more risk-prone abroad and the relief related to the relaxation of local political issues helped the country risk measured by Brazil’s Credit Default Swap (CDS) continue on a downward trajectory. After touching 191 points on Friday — the highest since April 22 , the spread on the contract’s five-year contract fell to 185 points in the early afternoon today.
Abroad, an apparent easing of concerns over what will be presented by Federal Reserve Chairman Jerome Powell at the Jackson Hole symposium on Friday has also helped to sap strength out of the dollar this week. Since the release of the minutes of the last BC American meeting, the US currency had been strengthening amid fears that a reduction in the volume of purchases of the asset program (QE) could be announced in this year’s edition of event.
For NatWest Markets professionals, the event will only provide some additional insight into when and what is expected to make the announcement. “The speech by Fed Chairman Jerome Powell should touch on discussions relating to the ‘taper’ that were already addressed at the July Fomc meeting. It is possible that it will provide more information about what is considered to be ‘substantial progress’ and also what is meant by ‘notice in advance’. We have been working with the vision that the Fomc will do this throughout its official meetings”, analysts say. NatWest understands that the formal announcement of the ‘taper’ should only be made in November and the effective start of the reduction of the QE, in December