Dollar rises reflecting risk aversion as tensions rise in Ukraine

THE dollar rises this Monday (14) after an intensification of tensions in Ukraine last Friday (11), with the United States stating that Russia has already gathered enough troops to invade the country. The scenario leads to risk aversion by investors around the world, favoring assets such as the US currency.

At around 9:20 am, the dollar rose 0.43% to R$5.265. The currency futures contract traded on B3 of the first maturity advanced 0.12%, at R$ 5.259.

The previous week, the dollar fell 1.54%, in the fifth consecutive week of losses, the longest sequence of its kind since May 2021. Ibovespa accumulated a high of 1.2%, also for the fifth consecutive week.

abroad

A possible Russian invasion of Ukraine – with a response from the US and allies – increases risk aversion of investors and leads to the search for the dollar, reducing the benefits for the real and for the Ibovespa of a cycle of investment migration to markets linked to commodities, in the case of Brazil, which limits the effects of bets on an aggressive interest rate policy fur Federal Reserve.

The cycle is linked, in part, to expectations of more pro-growth measures in 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, by 0.5 percentage point, reinforced by inflation data slightly above expectations and a drop in jobless claims released on Thursday.

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, putting negative pressure on the real.

Brazil

On the domestic agenda, the president of the Central Bank, Roberto Campos Neto, said at an event on Friday that the municipality will use all its tools to bring the country’s inflation back to the target. He estimated that inflation should start to fall after a peak that should occur between April and May.

This Monday, the Focus Bulletin brought an increase in market expectations for inflation in 2022, which rose to 5.5%. The projection for the Selic rate is that it ends the year at 11.75% per year.

The main fiscal threat on investors’ radar is the so-called Fuels PEC, which would allow the suspension of taxes for these products. Representing a possible lack of control of expenses, the issue negatively affected the real and the Ibovespa.

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 the other in the Chamber. One would involve tax breaks to reduce fuel prices.

THE CNN, the president of the Federal Senate, Rodrigo Pacheco (PSD-MG), stated that the Fuels PEC is not the focus at the momentsince the House will analyze two bills on the subject that should remove elements from the proposal.

Analysts estimate that the lesser-than-expected PEC on Fuels reduces fiscal risk. Ciro NogueiraChief Minister of the Civil House, signaled that the government should focus on the exemption of diesel oil, with a cost of R$ 18 billion, much lower than the expected loss of revenue of R$ 100 billion.

In this trading session, the Central Bank will auction up to 15 thousand traditional foreign exchange swap contracts to roll over the maturity date of April 1, 2022.

*With information from Reuters