|Exchange rate R$/US$ (end of year)||2,66||3,9||3,25||3,25||3,77|
|Exchange rate R$/€ (end of year)||3,21||4,21||3,65||3,97||4,34|
|Exchange rate US$/€ (end of year)||1,21||1,08||1,123||1,22||1,155|
(*) at 19/6/2018
For those investing from abroad, the relative value of the coins is of fundamental importance. To give a simple example, a company with an Ebitda of R$ 1,000,000.00, at the end of 2014 could count on a fee of US$ 375.939.00; with the same performance, at the end of 2017, the fee was US$ 307,692.00. Today, June 19, 2018, it would be US$ 265,251.00.
That is, to bring home the same result in dolalri 2014, the company should have, in mid-2018, have an annual Ebitda of R $ 1,417,000.00.
It is evident that in this context, the exchange rate becomes a management variable rather than an exogenous factor.
The exchange rate factor is of paramount importance in making decisions about whether and how much to invest in Brazil. In the case of acquisitions or investments, the current period and 2018 as a whole is a particularly favorable time for foreign companies; less favorable for those already in Brazil.
What happened in the last months?
– towards the end of 2017 there was a significant devaluation of the dollar against the euro, while the US currency maintained the same level as for the real (around 3.25 for a long period). Result: a depreciation of around 9% of the real against the euro
– in the first few months of 2018 a process of revaluation of the dollar against the euro began (increase in the US discount rate and announcement of the next end of the ECB’s Quantitative Easing)
– at the same time, the economic instability in Brazil (truckers’ strike, election uncertainty, slowing of economic growth mainly) has caused a real devaluation on the dollar of 14%
What awaits us in the second half of 2018?
First of all, we must always bear in mind that the foreign exchange market is very volatile and that its performance is not very predictable. It is easy to make predictions wrong, because both internal and external factors contribute to each country.
The graph below shows the trend of the dollar / real exchange rate from 2016 to today. In 2016, the maximum value was reached on February 19, the day when they served 4.20 reais to buy a dollar. It was the day when the government Dilma reduced the reduction in public spending, thus admitting a budget deficit for 2016.
The new maximum was added on June 7, 2018, when a dollar was traded at 3.92 reais, before the intervention of the Brazilian Central Bank to lower the prices, through the introduction of exchange swaps on the market.
Between these two “peaks”, a period of significant revaluation of the real (around the quotation of R $ 3.00 for a dollar) after the impeachment of Dilma, ended in April 2017 with the crisis caused by the revelations of Joesley Batista .
In recent weeks the dollar is moving within the 3.70 / 3.90 band, but what can you expect in the coming months?
In favor of enhancing the real:
– Banco Central (BC) has shown strong signs of wanting to avoid speculative attacks against the real. Despite the maintenance of a US $ / real exchange rate is not the goal of the BC (the only real goal is linked to inflation), a high exchange rate volatility has always been fought, especially when directed to a devaluation of the coin. Indeed, a real devalued has inflationary effects, due to higher prices of imported products.
– The Brazilian trade balance, thanks to the export of agricultural and mineral commodities, is nevertheless positive. From this point of view, there is a positive dollar entry balance estimated at US$ 58 billion / year.
In favor of the devaluation of the real:
– The presidential elections (October 2018) are approaching and the so-called “market candidates” (Alckmin and Meirelles, mainly) are still far behind in the polls. At the head Bolsonaro, populist candidate, whose positions in the economic field are considered very unreliable and fickle; growing Ciro Gomes, also feared by the market for positions often in favor of a greater presence of the state in the economy. If this situation were to consolidate, the run-off could present two candidates not very committed to defend a strict fiscal policy and to tackle the issue of pension reform.
– Both the FED and the ECB are adopting restrictive monetary policies. The demand for Brazilian bonds is very flexible to changes in US rates, so it could reduce the appetite of American investors towards Brazilian securities, thus decreasing the flow of speculative money.
– The Brazilian debt rating of the three main risk rating agencies – S & P, Moody’s and Fitch – places Brazil as a speculative grade (BB), with a negative outlook. The last downgrade took place in February 2018 by Fitch (BB-). The deterioration of the macroeconomic indicators, recorded starting April 2018, could lead to a new revision of the rating by S & P and Moody’s. With these ratings, large US pension funds and institutional investors generally can not invest in Brazilian bonds.
The forecasts for GDP growth in 2018 are falling rapidly and there are already those who expect it will not exceed + 1% (as in 2017). As long as inflation remains under control, the BC has declared that it does not want to intervene by increasing the discount rate (SELIC), today at 6.25%.
It is therefore probable that the weakness of the real will go at least until November, when the new President of the Republic will be known. In the case of the election of a candidate who does not offer guarantees on the maintenance of fiscal equilibrium and on the implementation of the reforms, speculation on the real could be made even stronger.