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The Dynamics of the Dollar Today Combine External Winds, Interest Rates, Fiscal Expectations, and a “Fair Value” of Exchange; See Why This Matters for Short- and Long-Term Decisions
The recent movement of the dollar has reignited the question that affects travel, investments, and financial planning: will it go to R$ 4.90 or return to R$ 6.50? According to economist Fernando Ulrich, there is a combination of forces at play: global weakening of the American currency, favorable interest differentials for Brazil, and, on the domestic side, still mixed signals regarding fiscal policies. When these vectors combine, exchange rates tend to seek an equilibrium point — but it oscillates with short-term shocks.
For Ulrich, the focus should be on separating noise from fundamentals. Part of the recent decrease is cyclical and global, while another part comes from the “carry” of interest that attracts capital. Without a credible fiscal anchor, however, the risk of reversal increases. Understanding this balance helps in deciding whether to buy, wait, or average out in foreign currency.
What Is Moving the Exchange Today
On the external side, the dollar has weakened against several currencies, a phenomenon that Ulrich describes as a “favorable wind” for emerging markets. When the American currency loses traction globally, countries with high interest rates tend to see their currencies appreciate, and the real is part of this group.
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The next few hours will be marked by increasing tension regarding the stance to be adopted by the Central Bank’s Monetary Policy Committee (Copom/BC) concerning the benchmark interest rate (Selic) at the end of this Wednesday’s (17th) meeting. Although the market is ‘divided’ on the committee’s decision, the stronger trend in recent weeks is that the rate will remain unchanged at the current level of 14.50% per year. Meanwhile, a minority faction still ‘bets’ on a 0.25 percentage point (p.p) decrease.
In Brazil, the interest differential (“carry”) remains high, while cuts have begun abroad. Ulrich notes that high domestic interest rates combined with falling rates in the U.S. increase the attractiveness of the real for short-term financial flows. This carry reinforces the tendency for currency appreciation — if the rest of the picture helps.
Equilibrium Exchange Rate: The “Fair Value” of the Real
Ulrich uses purchasing power parity (PPP) to estimate an equilibrium exchange rate, a sort of “gravitational force” towards which the market price tends to converge over time. In August, the market was around R$ 5.45 while the equilibrium was close to R$ 5.72, a difference he estimated to be around 13.4%; with quotations around R$ 5.27, the deviation would fall to near 10%.
The practical message: when the dollar strays too far from equilibrium — upwards or downwards — the trend is for re-approach, if there are no new shocks. This is not a short-term prediction, but a fundamental guideline to avoid emotional decisions.
Fiscal and Politics: The Balancing Act
In Ulrich’s diagnosis, the fiscal is the big “if” of the scenario. The perception of adjustment and stability reduces risk premiums and opens space for a stronger real. Without adjustment, the risk is for a rapid revaluation and the dollar back to R$ 6.00–R$ 6.50.
For now, he describes an environment of “relative calm” that allowed for a better exchange rate, but emphasizes that the future trajectory depends on commitment to public accounts. In other words: fundamentals help, but fiscal policy determines the duration of relief.
Balance of Payments and Reserves: The Cushion That Counts
Ulrich reminds us that, despite net outflows over 12 months, there has been a recent improvement in the balance of payments. International reserves returned to around US$ 350 billion in August, following a recovery this year.
Higher reserves act as insurance, reduce the perception of fragility, and give time for the market to adjust prices without panic.
Big Mac Index and Other Indicators
As an additional “check,” Ulrich cites the Big Mac Index, which indicates that the real is undervalued by about 28% against the dollar in the July reading.
It’s a simple indicator but useful for suggesting direction: historically, there is room for the real to appreciate more when shocks dissipate. It’s not a mechanical rule, but a compass among many.
And Now: Should I Buy Dollars or Wait? Strategies by Objective
For those with a set date (travel, enrollment, expenses in strong currency), Ulrich recommends staggered purchases taking advantage of drops, thereby averaging prices. Clear objectives and short timeframes require action, not guessing.
For those wanting to dollarize assets as a long-term protection, the message is similar: build a position over time, without trying to pinpoint the bottom. Diversification is a structural decision, not tactical. If the dollar falls further, the average price improves; if it rises, you are not fully uncovered.
The “scoreboard” today adds up to a weaker global dollar, favorable carry, and recent improvement in reserves — but fiscal remains the decisive point, as Fernando Ulrich emphasizes. If the commitment to adjustment remains, there is room for the real to breathe; if it deteriorates, the risk is a rapid return to higher levels.
Are you buying dollars gradually or did you prefer to wait? If the exchange rate goes to R$ 4.90, will you change your strategy? And if it goes back to R$ 6.50? Share in the comments how you are protecting yourself — we want to hear the experience of those feeling this in their pockets.
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