The Brazilian real has experienced a notable decline, weakening beyond 5.48 per USD in early October, reaching its lowest point in a week. This downturn comes amid rising risk aversion linked to geopolitical tensions, particularly surrounding Israel's retaliation against Iran, which has heightened fears of further military escalation. Investors are increasingly gravitating towards safer currencies, driven by these global uncertainties.
In addition to geopolitical factors, concerns regarding lower foreign exchange inflows have compounded the pressure on the real. Despite initial support from increased demand for Brazilian commodities from China, lingering doubts about the effectiveness of Chinese stimulus programs have caused fluctuations in the currency's value.
On a more positive note, easing domestic fiscal worries and favorable economic indicators have helped to temper the decline of the Brazilian currency. Notably, Brazil’s composite PMI improved to 55.2 in Stember 2024, a rebound from an eight-month low of 52.9 in August, signaling stronger growth in the private sector.
Additionally, the boost from Moody's recent credit rating upgrade to Ba1—approaching investment-grade status—reflects enhanced fiscal management and a promising economic outlook for Brazil.
In the latest trading session on October 7, the USD/BRL rose by 0.0342 or 0.63%, resulting in a new exchange rate of 5.4897, up from 5.4555 in the previous session. Analysts predict that the Brazilian real will settle around 5.55 by the end of this quarter, with an anticipated climb to 5.88 over the next twelve months.