The selloff in Brazil’s currency is getting so bad that strategists can’t keep up.
Even after cutting their forecasts by 20 percent this year, the most for any major currency, the estimates still trail the real’s current trading level. Banco Bilbao Vizcaya Argentaria analysts are revising their forecasts for the third time in less than six weeks after the real’s descent to a 12-year low Thursday. Nine banks including Credit Suisse Group AG and Societe Generale SA already cut projections this month after the swoon rendered earlier calls obsolete.
“It is incredible to see how dauntingly fast things are deteriorating,” Enestor dos Santos, an economist at BBVA, said from Madrid. “It’s been hard to nail down a projection.”
The changing forecasts underline the challenge in gauging the outlook for Brazil’s real. Its 9 percent drop in the past month, the most among major currencies, comes as an escalating political crisis upends President Dilma Rousseff’s push to right an economy in the throes of its worst contraction in a quarter-century. A growing number of legislators in Brazil’s largest party are raising the possibility of impeachment in a country reeling from an unprecedented bribery scandal and a downgrade by Moody’s Investors Service on Tuesday.
Brazil’s currency climbed declined 0.2 percent to 3.4808 per dollar Wednesday after earlier falling 0.8 percent. It fluctuated as China, the South American nation’s biggest trading partner, roiled global markets for a second straight day after it let the yuan weaken by the most since 1994. The real, which is down 24 percent in 2015, will end the year at 3.37 per dollar, according to the median estimate in a Bloomberg survey.
Moody’s lowered Brazil’s rating one level to Baa3, the cusp of junk, in the second downgrade since Rousseff came to office.
Two-thirds of Brazilians say Congress should open impeachment proceedings, according to an Aug. 4-5 poll by Datafolha that also put her approval rating at a record low 8 percent.
“It is a serious situation, and people are concerned she is losing her grip,” said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co. in New York.
Chandler, who said he only changes the bank’s forecasts quarterly, is working with an informal estimate for the real of 3.8 per dollar by year-end. That’s 17 percent weaker than his forecast at the end of June.
In a note to clients Tuesday, Goldman Sachs Group Inc.’s Kamakshya Trivedi and Alberto Ramos said the real will decline to 4 per dollar by year-end. That compares with a previous forecast of 3.55.
BBVA last revised its official forecast on July 29, cutting it to 3.34 per dollar from 3.21. BBVA’s Dos Santos didn’t say when the bank would announce its new projection.
Still, Santander Brasil SA chief economist Mauricio Molan said he’s sticking with his call for the real to end the year at 3.2 per dollar, which would entail a 9 percent rebound from current levels. The bank was the top forecaster of Brazil’s currency in 2014, rankings compiled by Bloomberg show.
“We still see room for an improvement in the political scenario,” he said from Sao Paulo. “That’s why we haven’t changed our forecast. Political crises always have an end.”
Lisa Alexandersson, an emerging-market analyst at Nordea Bank in Copenhagen, isn’t so sanguine. Her bank revised its year-end Brazil real forecast Tuesday to 3.65 per dollar from 3.2. The new forecast assumes the currency will slump another 4.2 percent from here.
“The real is likely to continue to suffer from high volatility in the months ahead,” she said in an e-mail.