Projections show the dollar will return to R$5 in 2024 – 12/31/2023 – Market

A large part of the financial market is betting on a slight devaluation of the real against the dollar in 2024, according to projections from banks and brokers.

Of the total of 18 analysis houses consulted by Sheet12 see the dollar returning to around R$5, and only three estimate an appreciation of the real compared to its current level — which today is around R$4.85.

Focus, a Central Bank bulletin that gathers analysts’ expectations, also projects the dollar at R$5 in 2024.

In a report, Santander says that, despite the solidity of its external accounts, the bank sees little room for an appreciation of the Brazilian currency. Looking abroad, the financial institution draws attention to the prospects of maintaining interest rates at restrictive levels in economies such as the United States.

In the internal scenario, on the other hand, Santander cites fiscal risks and the signal that the basic interest rate, Selic, will continue to fall. This combination of a drop in interest rates here and a rise in the US, that is, a reduction in the difference between the rates in the two countries, leads to a decrease in the flow of foreign capital in Brazil — as it pays less for short-term investors to take the risk here. As a result, the dollar appreciates.

“Thus, although there has been some improvement in the short term (…) we maintain our vision of a currency [brasileira] more devalued ahead, with a projection of R$5.25 per dollar for the end of 2024”, say bank analysts.

Also abroad, Santander cites “accommodation in commodity prices” as limiting the appreciation of the Brazilian currency. As Brazil is strong in the export of raw materials, the rise in prices benefits exporting companies with higher margins and attracts foreign capital to the country. When prices fall, however, these companies perform weaker, making them less attractive to outside investors.

The slow growth of China, Brazil’s largest trading partner, is also cited by the bank as a component that limits the appreciation of the real against the dollar.

BTG Pactual analysts say that the domestic fiscal scenario is relevant for the exchange rate, especially if there is a change in the primary result target, but they put this issue in the background. For the bank, exchange rate dynamics in the coming months will depend mainly on external factors.

In a report, the financial institution, which projects the dollar at R$5.00 at the end of 2024, highlights the importance of monetary policy in the USA, both for the appreciation and depreciation of the real against the dollar.

“It is worth highlighting that, even with lower domestic interest rates and the expected reduction in commodity prices next year, our models point to a more appreciated exchange rate in 2024 (below R$5.00 per dollar) if interest rates of ten-year US Treasury bonds settle at a level between 4.00% and 4.25%”.

Currently, US ten-year bonds are close to 4.00%.

In the domestic environment, in addition to the fiscal issue, BTG cites the “significant trade surplus”, with the Brazilian trade balance breaking a record this year, registering a positive balance accumulated so far of more than R$90 billion.

This factor has resulted in a greater inflow of dollars into the country, says the bank, and will continue to contribute to the domestic currency “performing well in comparison with its peers.”

Inter bank also sees “unbalanced risks” for the exchange rate in 2024. According to a report from the financial institution, “the fiscal could once again bring bad mood among investors, particularly if the government proves unable to control the growth in spending.”

On the other hand, Inter says that the end of the upward cycle in US monetary policy “helps limit pressure via interest differentials”.

“Furthermore, we expect the trade balance to continue at a robust level in 2024, maintaining the positive flow. Given this scenario, we expect the exchange rate to end 2024 quoted close to R$5.00, with a downward bias”, he says the bank.

Itaú, which had an expectation of R$5.25 for the exchange rate at the end of 2024, changed its projection on Thursday (21) to R$4.90. The bank justified the change by arguing that it sees the Federal Reserve, the American central bank, lowering interest rates earlier next year.

“In addition, the low domestic risk premium and the good performance of the trade balance provide support for the currency,” adds the bank.

The most pessimistic of all for the exchange rate, C6 Bank revised its projection for the dollar from R$6 to R$5.50 recently, also arguing that the expectation of an anticipated interest rate cut by the Fed should improve the outlook for the currency Brazilian next year.

Recently, the US monetary authority began to adopt a less harsh stance regarding interest rates, leading many analysts to bet on a cut in the country’s base rate after the first quarter of 2024, something that was beyond experts’ horizons a few months ago. .