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After closing last week at R$5.70, analysts warn that the US currency is heading more easily towards R$6 than it will return to levels seen at the beginning of the year, mainly due to fiscal uncertainties.
After accumulating a 17.61% increase in the year against the real until last Friday, when it closed trading at R$5.705, the dollar continues to appreciate. According to experts, the US currency is closer to reaching R$6 than returning to the R$5 level, as observed at the beginning of the year. They indicate that, although external factors, such as the US elections and the recession in China, have influenced this result, the largest share of "responsibility" for the rise in the dollar lies with the internal conflicts between the country's fiscal and monetary policies.
A series of slower cuts in US interest rates could be beneficial for Brazil, to avoid a sharp flight of investments in the short term. At its last meeting in September, the Monetary Policy Committee (Copom) of the Brazilian Central Bank decided to increase the economy's base rate (Selic) by 0.25 percentage points, to 10.75% per year, in a move that is contrary to that of the United States. One of the main objectives is precisely to avoid an even greater depreciation of the real in relation to the dollar.
Although external factors contributed to the rise of the US currency, the recurring analysis made by experts is that internal factors, such as the increase in public debt, the expansion of mandatory expenses and the war between the government and the Central Bank, were decisive for an even greater appreciation of the dollar in the domestic market. "The increase in mandatory expenses makes budget execution even more difficult, with an already extremely rigid budget like ours", considers the senior economist at Tendências Consultoria Silvio Campos Neto.
Even with the goal of a zero deficit for 2024 and 2025, the most recent projections show that the government is unlikely to be able to control the gap between revenue and expenditure in the next two years. With spending increasing in several areas, the economic team must find alternatives to reduce expenditure and not focus solely on increasing revenue, which has been the focus of Finance Minister Fernando Haddad's administration since the beginning of President Luiz Inácio Lula da Silva's term.
The minister avoided announcing any new spending cuts this year during his trip to Washington last week. Despite this, the issue is unlikely to be left off Haddad's radar, as he said during the same trip that he will meet with Lula and other ministers starting this week.
During the meeting in the US, Haddad avoided discussing criticisms regarding fiscal control and came out in defense of the fiscal framework. Alongside the president of the Central Bank, Roberto Campos Neto, the minister reinforced that the government must rethink a "strategy to strengthen the framework."
However, for XP Investimentos economist Francisco Nobre, the fiscal rule has lost relevance in recent months, with the increase in spending. "Most of the devaluation that we saw in the exchange rate throughout the year was a reaction to these fiscal and political concerns, and we believe that there is currently an additional risk premium here in Brazil that is being reflected in today's exchange rate," says the expert. He believes the dollar will be closer to R$6 than R$5 in the short term.
"Our projection for the dollar this year is R$5.40, for this year and next year, because it is a bit in the middle between what the fundamentals indicate and the value of the currency today. But it seems that the risks are currently tilted upwards, and it is likely that, if we are to miss our projection, it will be upwards and not downwards", he analyzes.
Emerging
In addition to the real, other emerging currencies have also accumulated losses this year, such as the Mexican and Colombian pesos and the South Korean won. This movement may be a reflection of a period of high sensitivity in the financial markets, according to Nomad's chief economist, Danilo Igliori, who argues that these pressures are felt "with each release of indicators, comments by authorities and events of various natures."
"In general, this has been happening since last year, when many people bet on the emergence of recessions as a consequence of interest rate hikes and they did not occur. The context is particularly complex due to the high degree of uncertainty in the domestic and international scenarios and the diversity of factors that make up the risk balances on the supply and demand for currencies", he considers.
At the same time that the dollar appreciated against the real, the DXY Index, which measures the strength of the US currency against the world's major currencies, has accumulated a 2.86% increase since the first day of this year. The increase, however, is much lower than the 17% increase in the exchange rate against the Brazilian currency, which indicates that uncertainties regarding the domestic scenario are stronger than external factors. "In general, emerging country currencies have been suffering against the dollar throughout the year, which suggests that the room for strengthening of the real tends to be limited. If everything goes well, we could see the exchange rate around R$5.40, but there are risks of further deterioration and the chance of breaking the R$6 barrier cannot be highlighted", Igliori emphasizes.