The week ended with the continued fall of the Brazilian currency, the real, as the commercial dollar closed on Friday (March 7th) at R$3.056/US$1. Just the day before, the real fell to the level of R$3/US$1, the lowest since August 2004.
During the week, the U.S. dollar appreciated by 7.02 percent against the real, and since the beginning of the year, cumulative growth reached 14.96 percent. Earlier on Friday, the trend was boosted by the release of the employment report in the United States, showing a decrease of 5.5 percent in the unemployment rate for February.
The dollar has also risen relative to other currencies such as the euro after the release of data showing the recovery of the U.S. economy. In January, orders for durable goods (such as cars and appliances) rose in the U.S., interrupting a sequence of four months of decline.
The increase in consumption in the United States reinforces the prospects that their Federal Reserve may soon increase the interest rates of the world’s largest economy. Higher interest rates in developed countries reduce the flow of capital to emerging countries like Brazil, pushing the dollar up further still.
However the fall of the real can not be solely attributed to a stronger U.S. economy. Just last month it was reported that the Brazil stock market has fallen by 35 percent in terms of U.S. dollars since the start of September, just under half of that has been caused by a drop in the value of Petrobras shares.
According to Capital Economics’ Latin American Market Monitor report for February, the depreciation can be attributed to the on-going corruption scandal at state-owned oil company, Petrobras and the downgrade suffered by the oil giant by credit rating agency Moody’s. “We think that the further weakening of the Brazilian real has had more to do with the deteriorating economic outlook and fears that FX intervention may soon be scaled back,” stated the monthly report.