Dollar operates higher as market digests Copom minutes

THE dollar rises this Tuesday (8) as the market digests the minutes of the last meeting of the Monetary Policy Committee (Copom) of the Central Bank. Despite keeping the signs of a slowdown in the cycle of hikes in the basic interest rate, the Selic rate, the document does not inform how much the increase will be at the next meeting.

At around 9:24 am, the US currency was up 0.14% at R$5.262. The first-maturity dollar futures contract traded on B3 retreated 0.06%, to R$ 5,260.

On Monday (7), the dollar closed with a devaluation of 1.33%, quoted at R$ 5.254, the lowest value since September 15, 2021. Ibovespa fell 0.22%, to 111,996.40 points.

Brazil

In the domestic scenario, investors reflect the minutes of the last Copom meeting. In it, the committee decided not to inform how much interest rate hikes will be at the next meetings, but maintained the perspective of a reduction in the pace of the hike cycle, still “significantly in contractionary territory”.

The Copom has as a reference scenario the Selic at 12% per year at the end of the first semester, ending 2022 at 11.75%. However, he says this base case could be threatened by heightened fiscal uncertainty and a current bullish cycle in commodities, such as the Petroleum. The document also cites a scenario of widespread inflation, increasing the chance that it will exceed estimates.

The increase in interest rates favored the real against the dollar, while making fixed income more attractive than variable income, harming the stock market.

The main fiscal threat on investors’ radar is the so-called Fuels PECwhich would allow the suspension of taxes for these products.

According to projections by the government’s economic team, the loss of revenue could reach R$ 100 billion in the most comprehensive proposal, going from R$ 54 billion in the text currently supported by the Planalto and by R$ 18 billion if the project is limited to the diesel.

Two PECs on the topic have already been filed, one in the Senate and another in the Chamber, and should be discussed throughout the week. One would involve tax breaks to reduce fuel prices. According to the policy analyst at CNN Caio Junqueira, the proposals were made by Centrão without consulting the Minister of EconomyPaulo Guedes.

The domestic agenda filled with important indicators on the local scene should move the week, including the IPCA and the IBC-Br.

In this auction, the central bank will auction up to 15,000 traditional foreign exchange swap contracts to roll over on April 1, 2022.

abroad

In addition to high interest rates, the real continues to benefit from a movement of investments in commodities and markets linked to them due to an appreciation cycle.

Expectations of more pro-growth measures in the Chinawhile bearish economic pressures persist, hopes are rising for a pick-up in demand for metals, analysts said, leading to higher prices.

In the case of oil, analysts at Goldman Sachs say that Brent oil prices are expected to exceed US$ 100 a barrel this year. According to them, the oil market remains in a “surprisingly large deficit” as the effect of the Omicron variant of coronavirus in demand for the commodity is, so far, lower than expected. In addition, tensions in Ukraine affect prices.

Another factor that weighs on this movement is the expectation of interest rate hikes in United States in March, reinforced by employment data released last week. As a result, foreign investors have left the US stock market and migrated to other visas such as more resilient or cheaper.

Any rise in interest rates in the country, however, may affect investments in Brazilas it makes US Treasury bonds even more attractive to investors.

*With information from Reuters