Brazilian real weakens past four dollar mark, scant rebound seen by Capital Economics

The Brazilian currency fell past the four US dollar mark on Tuesday afternoon after having surrendered half of its value versus the Greenback since 2013, returning it to levels not seen since 2003.

However, this time around several factors suggested there was little chance of a quick appreciation ensuing from these levels, Capital Economics said in a research note sent to clients.

For starters, the US dollar was not on its backfoot, weighed down by its current account deficit, the think-tank explained.

Furthermore, weakness in Brazil’s so-called ‘real effective exchange rate’ – a measure of its currency’s value adjusted for inflation differentials and weighted to take into account its trading patterns - was justified by lower commodity prices.

To cap it all off, the country had been enduring risk aversion and higher inflation vis-à-vis its trading partners, with the latter entailing a weaker nominal currency just to keep the real exchange rate steady at any given level, Capital Economics said.

As of 16:00 the US dollar was 1.55% stronger versus the Brazilian real at 4.0469.