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Brazilian Real Extends Rebound Despite Economic Pressures, COVID-19

May 26, 2020 at 16:06 by Andrew Moran

A heap of Brazilian real billsThe Brazilian real is extending its rebound on Tuesday, despite a myriad of economic and fiscal pressures weighing on the South American country. The economy has been reeling as the nation has become a coronavirus hotspot, prompting the US government to impose a travel ban. But could the commodities-rich nation survive the pandemic?

President Jair Bolsonaro has been on a tirade since Brazil became one of the world’s most infected countries. The president has blamed mayors, governors, members of his cabinet, and the press for the public health crisis. Bolsonaro has deflected any responsibility, choosing to defend his decision to avoid a nationwide shutdown to protect the economy.

Brazil has more than 377,000 confirmed COVID-19 cases and nearly 24,000 deaths. The data point to a situation whereby the economy has worsened as the coronavirus engulfs the nation.

Here are just some of the numbers as of late: foreign direct investment cratered from nearly $8 billion in March to just $230 million in April, industrial production plunged 9.1%, the purchasing managers’ index (PMI) readings all contracted, and retail sales fell 2.5%. The government’s finances have also taken a hit as the federal deficit worsens. It is unclear if the central bank’s mix of cuts to interest rates and quantitative easing efforts will resuscitate growth.

The overall economy is forecast to crash 5.1% this year. And it is unclear just how much the US travel ban on Brazil will affect it.

But there is one sector that has continually been doing well: commodities. Its soybean exports, for example, surged 33% in May to 12.24 million metric tons, buoyed by a weakening real.

The Brazilian real has been the worst-performing emerging market currency in the world, slumping to an all-time low of 5.9682 against the greenback. The market consensus is that the real will slide to around 6.2000 against the US dollar. What is an interesting trend is that the real has rebounded about 6% over the last week, defying many projections.

Katrina Butt, a senior Latin America Economist at AllianceBernstein in New York, told Bloomberg:

The Brazilian economy has been hit hard by the Covid-19 crisis. The uncertainty of economic reopening globally is likely to increase demand for dollars against most currencies, especially emerging-market ones, in the near term.

The USD/BRL currency pair tumbled 2.83% to 5.3779, from an opening of 5.5343, at 15:59 GMT on Tuesday. The EUR/BRL dropped 0.56% to 5.9009, from an opening of 5.9347.

If you have any questions, comments, or opinions regarding the Brazilian Real, feel free to post them using the commentary form below.

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