The Brazilian real is surging toward the end of the trading week, buoyed by better-than-expected economic data for October. The real has further benefited from the gradual reduction in the number of new coronavirus infections. Is the real, which has been one of the worst-performing currencies in foreign exchange markets, setting the stage for an incredible rebound heading into 2021?
In October, the IHS Markit manufacturing purchasing managers’ index (PMI) came in at 66.7, up from 64.9 in September. This represents the fifth consecutive expansion in factory activity, as well as the best reading on record. The PMI in October was driven by new orders, export sales, and employment.
The IHS Markit’s services PMI jumped from 50.4 in September to 52.3 in October. The composite PMI also hit 55.9 last month, up from 53.6 in September.
According to the Instituto Brasileiro de Geografia e Estatística (IBGE), industrial production rose 2.6% in September, down from 3.6% in August. This is better than the market forecast of 2.2%. The better-than-expected output was supported by gains in automobiles, machinery equipment, apparel, footwear, and commodities.
The balance of trade reached $5.5 billion in October, coming in lower than the median estimate of $6.1 billion. Imports cratered 27.3% year-over-year to $12.38 billion, while exports fell at an annualized rate of 8.8% to $17.86 billion.
This comes as Economy Minister Paulo Guedes reiterated the nation’s economic recovery and the virus outbreak receding. He dismissed the official data showing a boost in unemployment, but Guedes stated that this does not take into account the millions who are unregistered or classified as informal workers.
Adolfo Sachsida, economic policy secretary at the economy ministry, also noted that he is not too concerned about inflation.
I’m not worried about inflation. When you look at expectations for this year and the next, inflation is totally under control. Inflation is not a problem.
Sachsida further noted that he expects unemployment to fall next year amid relaxing of social distancing restrictions.
The figures we have indicate that social distancing will return to February levels in the middle of December. We are not epidemiologists, I am only sharing data that I follow as part of my job. From an economic point of view, they give us great confidence that in mid-December we will have movement like we did in February, and that from January people will be returning safely to work.
Brazil has recorded 6.6 million confirmed cases of COVID-19, with a death toll of 161,000.
The USD/BRL currency pair declined 1.68% to 5.5688, from an opening of 5.6642, at 16:02 GMT on Thursday. The EUR/BRL plummeted 0.99% to 6.5751, from an opening of 6.6402.