Brasília – One day after reaching its highest peak in four years, the commercial United States (US) dollar rate dropped this Thursday (13th) by nearly 1% against Brazil’s real. By the end of the day, the US currency stood at R$ 2.1334 (sale), down, 0.96% from the closing value recorded on Wednesday (12th).
The decline took place one day after the Brazilian federal government lifted the Tax on Financial Operations (IOF, in the Portuguese acronym) on short dollar positions in the futures market. The measure causes dollar supply on the market to go up, and thus relieves the pressures that push the currency up.
Yesterday, the commercial US dollar closed at R$ 2.1541 (sale), the highest level since April 30th, 2009. The dollar hike in the past few weeks was a result of the Federal Reserve’s indication that it will cut the monetary stimuli that have boosted the US economy over the last few years. As the amount of dollars in circulation drops, the currency becomes dearer, and that affects dollar exchange rates worldwide.
The change in the international scenario prompted a reaction from the Brazilian government. Initially, the Central Bank resumed its traditional foreign exchange swap operations, i.e. selling US dollars on the futures market. In the past nine days, the government withdrew tax barriers against foreign capital inflow, in an attempt at holding back the exchange rate.
On June 4th, Finance minister Guido Mantega announced the IOF tax exemption on foreigners’ fixed income investment in Brazil. On that occasion, the government also lifted the tax no derivatives margin deposits, i.e. amounts deposited by investors upon initiating futures market operations. Yesterday, the last barrier was lifted, as the IOF on net short positions in the futures market was eliminated.
Futures market operations are denominated in Brazilian real, but they interfere with the supply of and demand for dollars. The reason for that is, the investors on the selling end are forced to provide the amount in reals equivalent to the US dollar exchange rate that is set upon the signing of each sales contract.
*Translated by Gabriel Pomerancblum
