The Brazilian real has appreciated, surpassing 5.48 per US dollar. This marks a recovery from the early August low of 5.52 noted on October 10th. This change follows the alleviation of trade-war tensions prompted by the United States signaling a de-escalation of conflicts with China over the weekend. Comments from President Trump have taken a softer tone, lessening the likelihood of sudden tariff hikes or export controls, which previously drove emergency dollar-hedging activities.
Externally, China's purchasing patterns in September, including unprecedented iron ore imports and increased crude oil and soybean purchases, have bolstered Brazil's short-term export earnings, subsequently boosting foreign currency inflows. On the domestic front, the Selic interest rate, maintained at 15%, continues to render real yields attractive, supporting portfolio investment in the real and curbing pronounced outflows.
Nonetheless, the currency remains susceptible to instability following the dismissal of the IOF replacement initiative and persistent concerns regarding an expanding fiscal deficit. These factors have kept financing premiums high, leaving the real vulnerable to renewed risks or fiscal policy disturbances.
