Broadcast: 06/15/2023
Special: Real’s volatility drops to its lowest level since 2019 with Fiscal Framework and disinflation in the US
The implied volatility of the Brazilian real has plummeted in recent weeks to less than 13%, reaching the lowest level since the end of 2019. This sharp decline reveals a significant reduction in investors’ perception of risk. Consequently, the real experienced a wave of appreciation in recent days. With losses in seven out of the first eight trading sessions in June, the spot dollar broke below the support level of R$ 4.90 and closed yesterday at R$ 4.8624, showing a depreciation of over 4% in the domestic exchange market this month.
Implied volatility is a relevant risk measure that shows the estimated price fluctuation of an asset in the future. In the case of the exchange rate, it is calculated based on 30-day dollar option contracts. Generally, a reduction in volatility signals that investors are more optimistic and foresee a less turbulent market environment.
“The lower volatility of the real is closely linked to the evolution of the fiscal framework, which positively surprised, although there has been no adjustment on the expenditure side. The drop in country risk reflects improved fiscal credibility on the margin, as there was a lot of uncertainty at the beginning of the year,” says Andrea Damico, chief economist of Armor Capital.
The chief economist of Armor Capital believes that the Fed will announce the maintenance of interest rates today, albeit with a tough stance, leaving the door open for a resumption of tightening in July. “In our view, the Fed will not raise interest rates again in July. And even if there is an increase, it will be the last one. There is also no longer the tail risk of the Fed taking interest rates to higher levels, which provides market reassurance and reduces currency volatility in general,” says Damico.
Source: http://www.broadcast.com.br/cadernos/financeiro/?id=SEtDYWVjOWdaZkQ3ZXJBeU5MbThJdz09
