What is happening to BRL as the Brazilian Real collapses against the US Dollar

The Brazilian Real (BRL) has reached a new all-time low against the US Dollar (USD) this Friday, November 29. Previously, the USD only traded that high against the BRL in early May 2020, during the COVID-19 crisis beginning.

Barchart described what is happening as a collapse of the Brazilian Real against the US Dollar, which is intensifying.

On Thursday, November 28, the real made an all-time low against the dollar, followed by a subsequent record drop. This performance happened after a pronouncement from Fernando Haddad, Minister of Finance of Brazil, addressing cost savings plans by 2026.

Brazil cost savings plans and taxations by Fernando Haddad

The promised R$70 billion ($11.66 billion) cuts failed to satisfy foreign investors, as the Financial Times reported. “Business leaders (…) warn that rising state expenditure is feeding inflation and risks pushing debt to unsustainable levels,” the FT wrote.

Moreover, Brazilians went to X to criticize the introduced strategy, which also intends to increase the wealth taxes for monthly incomes superior to R$50,000 ($8,300) and may cause a wealth-exodus from the country. Finbold reported how Norway’s taxing policies caused over 30 of the richest persons to leave the country since 2021.

Haddad has also been highly criticized due to a heavy taxation policy since taking over the Ministry in 2022. Yet, the BRL was coming from a steady recovery against the USD in the past two years.

Brazilian Real (BRL) vs. US Dollar (USD) exchange rate

Right now, $1 costs R$6.09, while 1 BRL will cost 0.164 USD for foreign exchange (forex) traders. This means a R$0.10 (1.66%) premium against May 2020’s USD/BRL all-time high of R$5.99.

Notably, technical indicators validate the strong momentum for the dollar against Brazil’s currency. The weekly and monthly Relative Strength Index (RSI) mark 72.29 and 69.50 points, respectively, nearing the overbought state.

Meanwhile, the 50-week exponential moving average, which reflects the exchange rate’s average in a year, has an 11% discount over the current prices, floating around R$5.42 this week.

Interestingly, local exchange offices in Brazil were already selling USD for over 6.50 BRL during yesterday’s highs. The significant premium the Brazilian retail has to pay for the dollar is increasing in today’s rally, affecting the economy.

At the same time, a Brazilian Congressman is proposing a bill to create a national Bitcoin (BTC) reserve. If approved, this resource could strengthen the Central Bank’s treasury, potentially helping to address the BRL weakening against the USD.

Featured image from Shutterstock.