Currency traders going short on the Brazilian real have had a fantastic run of form in 2015. That speculators are bearish on this BRICS country is deeply rooted in fundamental and structural weaknesses in Brazil. For starters, corruption, malfeasance and historically low levels of support for the President have sent the Brazilian economy into a tailspin. Just recently, the Brazilian real plunged 3.3% to the USD when it was trading at R$3.9028. At those levels, the Brazilian currency is fast approaching the R$4:1 ratio and this places it well within its 12-year low point. Analysts across the board are firmly of the opinion that capital outflows from the Brazilian economy are going to continue.

Recent Performance of the Brazilian Real vs USD

As talk of US rate hikes gains ground – whether in September or before the end of 2015 – disinvestment or reduced levels of investment in economies like Brazil is bound to take place. There is a large amount of portfolio readjustment in the works, with financiers and investors carefully weighing their options vis-a-vis emerging market economies and the inherent risks they come with. With respect to the Brazilian real, there is an incredible amount of volatility and there is a high risk of further downgrades by top ratings agencies like Fitch and Moody’s. As more capital outflows take place, so the demand for the Brazilian real decreases. This is precisely what has transpired, and is evident in the cross-currency exchange rate. The current exchange rate of the Brazilian real to the US dollar is 3.8751 (+1.56%) as at September 15, 2015.

Between 1993 and 2015 the average currency exchange rate for the Brazilian real and the US dollar was 1.88. The worst trading level it reached was back in 2002 when it was trading at 3.95 to the dollar and in 1993 a record low point was hit when it was trading at 0.01 to the greenback. Brazil has been plagued by hyperinflation in recent years. Between 1980 and 2015, the average inflation rate in the country was 381.67%. By April 1990 the figure spiked to 6,821.31%. However by the end of 1998 this had fallen to a record low figure of just 1.65%. It is clear that monetary policy in Brazil is just as inept as the fiscal policy measures adopted by government in terms of spending and taxation.