|Exchange rate R$/US$ (end of the year)||3,25||3,87||4,08||5,19||5,24|
|Exchange rate R$/€ (end of the year)||3,97||4,43||4,53||6,38||6,19|
|Exchange rate US$/€ (end of the year)||1,22||1,15||1,11||1,23||1,18|
(*) up to 15/9/2021
For every investor the relative value of the money is of fondamentale importance. For a simple example, an offer with an Ebitda of R$ 1,000,000.00, all the fine of 2017 can count on a corresponding amount of US$ 307,692.00; with the same performance, at the end of 2020, the amount was US$ 192,678.00. As of today, 16 September 2021, it would be US$ 190,840.00
That is, to bring home the same result in dollars as in 2017, the company should have, in September 2021, an Ebitda of R $ 1,612,306.00.
It is clear that, in this context of volatility, the exchange rate trend becomes a management variable rather than an exogenous factor.
The exchange factor is of fundamental importance in decisions regarding whether and how much to invest in Brazil. In the case of acquisitions or investments, the current period, despite the pandemic still underway, is a particularly favorable time for foreign companies; less favorable for those who already existed in Brazil and are serving a still weak real.
What happened in the last months?
– With the outbreak of the coronavirus pandemic at the level, at the end of February 2021, the Brazilian currency suffered a sharp devaluation. The dollar went from a rate of R $ 4.20 / 4.30 to one of 5.60 / 5.70 in the space of three months: a record devaluation of 25%
– To stimulate the economy during the 2020 crisis, Banco Central has gradually reduced the discount rate from 4.75% at the beginning of the year to 2% at the end of the year. With inflation rising, low interest rates turned foreign investors away and spurred capital outflows to safer markets. With the current growth movement in the discount rate (today at 5.25%), Brazilian bonds are returning to have an interesting return, but rising inflation (today at around 9%) is eroding all margins.
– Towards the end of February 2020, the statements by the Minister of the Economy, Paulo Guedes, in favor of the weakening of the Brazilian currency led to a real collapse in prices.
– towards the end of 2017 there was a significant devaluation of the dollar against the euro, while the US currency maintained the same level against the real (around 3.25 for a long period). Result: a devaluation of about 9% of the real against the euro
– in the early months of 2018 a process of revaluation of the dollar against the euro began (increase in the US discount rate and announcement of the near end of Quantitative Easing by the ECB)
– at the same time, economic instability in Brazil (truckers’ strike, electoral uncertainty, slowdown in economic growth mainly) caused a devaluation of the real against the dollar equal to 14%
– with the election of Bolsonaro, October 2018, the expectation was that of a revaluation of the real (in fact immediately after his election it revalued by 13%), but during 2019 the modest performance of the Brazilian economy led to its new devaluation of about 2% against the euro (from January to October 2019).
What awaits us in the coming months?
First of all, it must always be borne in mind that the foreign exchange market is very volatile and that its trend is not very predictable. It is easy to make a mistake, because factors both internal and external to each country concur.
However, I report an interesting technical analysis made by Anderson Rowheder of FX Empire, an important financial consultancy firm, published on 14 September 2021.
Bearish trend of the dollar for the next few months.
Based on technical analysis, the weekly dollar futures chart is trending down. The price fell sharply, hit a lower low than before and climbed close to the 61.8% retracement of all bearish moves.
Interestingly, the bearish movement was quite intense and the bullish movement was made with movements within a parallel channel, a pattern known as a bearish flag. Should the asset lose its flag in the coming weeks, it will also trigger a bearish pivot targeting the bottom of the flag as its first target. Which would bring the dollar price below R $ 5.00.
Euro / dollar with similar signs.
The Euro / US Dollar currency pair has fluctuated within a broad channel since November 2020. However, in the past few weeks the price has reached the bottom of the figure, climbed to the 38.2% retracement of the bearish move, and formed a red bar in the sequence. If the asset loses the rectangle, it will also trigger a bearish pivot, which could bring the price below the average of 200, as shown in the chart.
Dollar index lateralizing.
The dollar index, which is a comparison of the dollar to a basket of currencies, had a strong bearish move in mid-2020, but has been working within a rectangle below the 200 average since November of that year. This scenario does not necessarily indicate a fall in the value of the asset, but if the price were to remain within the rectangle for a few more weeks and the average of 200 reaches the price, it is possible that the asset will make a strong downward movement, as this behavior could fall into a pattern known as a “power breakout”, which indicates the fall of the asset when the average touches the price.
Dollar down and Ibovespa up.
If the US currency really starts to lose value against the real, the Brazilian stock exchange could rally as assets show an inverse correlation. This is because, in general, when the dollar falls against a currency, such as the real, it means that investors are buying the real and selling the dollar and by the law of supply and demand, as the supply of dollars increases, this loses value. After buying the real, investors invest the money in the Brazilian stock exchange, causing the listed shares to increase in value.
Therefore, the outlook is favorable for the long term, especially if the political scenario in Brazil leads to greater investor confidence.