Dollar drops below BRL 5 on optimism about lifting restrictions in China

THE dollar fell 1.32%, quoted at R$ 4.984, around 9:20 am this Tuesday (17), following the performance abroad amid market optimism about a possible end to the lockdowns in china over the next few weeks.

In Shanghai, the country’s economic hub, the forecast is end restrictions by the end of May with officials saying that the new outbreak of Covid-19 was controlled. The reopening would allow a recovery of the Chinese economy, resuming production and export and import levels, and reducing the risk of a global recession.

The recovery particularly favors countries that supply raw materials to China. This is the case of Brazil, which is a major exporter of commodities including iron ore, and which tends to benefit from higher prices for these products as Chinese demand increases.

In this auction, the central bank will auction up to 15 thousand traditional foreign exchange swap contracts for the purpose of rolling over the maturity date of July 1, 2022.

On Monday (16), the dollar retreated 0.14%, to R$ 5.050. already the Ibovespa rose 1.22% to 108,232.74 points.

global pessimism

The most recent instigator of global risk aversion was the interest rate hike in the US , announced by the Federal Reserve on May 4. Despite discarding hikes of 0.75 pp or a risk of recession, the municipality signaled at least two more hikes of 0.5 pp

Higher interest rates in the United States attract investments for the country’s fixed income due to its high security, but it harms stock exchanges around the world, including the North American ones.

Along with a series of interest rate hikes around the world, lockdowns in china to try to contain Covid-19, projections of a strong economic slowdown have increased, hurting markets.

The growth of exports Chinese companies even slowed down to single digits, the weakest level in almost two years, while imports barely changed in April, amplifying economic concerns.

effects in the real

Returning to R$ 5, the dollar reversed part of the gains that the real obtained in the first months of the year due to a combination of factors that influenced the flow of purchase and sale of the currency.

To the CNN Brasil Business experts associated this recent appreciation to two main factors: the prospect of higher interest rate hikes in the United States and fears regarding the lockdowns established in a number of economically relevant cities in China .

Higher US interest rates tend to attract investments to the country’s Treasury bond market, drawing capital from markets considered riskier than U.S the case of Brazil.

The measures to control the spread of the Covid-19 in China, which affect cities like Shanghai and Beijing, tend to reduce the world’s second-largest economy’s demand for commodities harming its main suppliers, including Brazil, and negatively influencing the prices of these products.

However, with the prospect that these restrictions should be lifted between May and June, Chinese demand is expected to return to previous levels, which would once again favor commodity exporters and alleviate some of the pressure on the real.

*With information from Reuters