Brazilian Real Falls As Trump Threatens to Restore Tariffs

The Brazilian real is falling against multiple currency rivals as President Donald Trump threatened to restore tariffs on Brazil and Argentina goods, accusing the two countries of devaluing their currencies. But is this really about the two markets becoming go-to sources for China’s soybean needs? The Brazilian leadership attempted to quash concerns, noting that it plans to speak with the US administration.

On Monday, President Trump tweeted that Argentina and Brazil are devaluing the currencies to make their exports more attractive to foreign markets. He asserted that this is not good for American farmers. As a result, he confirmed that he is restoring import levies on all aluminum and steel products shipped into the US from those nations.
Because other countries are debasing their currencies, Trump contended that it is no longer an advantage to possess a strong dollar policy. He also took a swipe at the Federal Reserve, encouraging it to lower interest rates and further loosen monetary policy.
President Jair Bolsonaro told the press that he will meet with Economy Minister Paulo Guedes to discuss steel tariffs and the currency before commenting on Trump’s decision. He added that he has “an open channel” with the US president. Reuters is also reporting that the government is already in communication with the White House to clarify the situation.
In recent months, the Brazilian central bank has intervened on multiple occasions to support the devaluing real, which has been the worst emerging market currency this year. Last month, the currency slumped to an all-time low, prompting the central bank to intervene on two separate instances to ease the pressure. One such policy decision has been to initiate two auctions of $1 million in Treasurys. It has also slashed its benchmark interest rates by 150 basis points to 5%, and experts are penciling in another 50-bps cut this month.
The Argentine peso, meanwhile, crashed as much as 55% in a single day after a surprising election result. The peso has slightly recovered but it is still at historic lows.
In October, China’s inbound shipments from the US fell to 1.15 million tons. In the same month, Beijing acquired 3.8 million tons of soybeans from Brazil and 960,000 tons from Argentina.
On the data front, Brazil will be releasing its third-quarter gross domestic product (GDP), automobile production, and industrial output this week. On Monday, the November manufacturing purchasing managers’ index (PMI) came in at 52.9 and the balance of trade for November narrowed to $3.428 billion.
The USD/BRL currency pair tumbled 0.51% to 4.2160, from an opening of 4.2403, at 18:11 GMT on Monday. The EUR/BRL rose 0.04% to 4.6714, from an opening of 4.6718.

If you have any questions, comments, or opinions regarding the Brazilian Real, feel free to post them using the commentary form below.

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