The USD/BRL pair rebounded sharply, reaching its highest point since January 21. It soared to a high of 5.3423, much higher than this week’s low of 5.1155, as the US dollar rallied amid the ongoing war in the Middle East.
Brazilian Real Drops as US Dollar Rally Continues
The USD/BRL pair has soared this week primarily because of the ongoing US dollar rally. The dollar index, which weighs the value of the greenback against a basket of currencies, rose to $99.38, its highest level since November last year. It has been in a strong uptrend after bottoming at 95.56 earlier this year.
The dollar has jumped because it is widely seen as a safe-haven asset. Its haven state has risen this week as the crisis in the Middle East escalated. Iran has expanded the war by launching missiles at key US infrastructure in the Middle East.
It has also closed the Strait of Hormuz, leading to higher crude oil prices. Brent, the global benchmark, soared to $85, much higher than the year-to-date low of $55. Global shipping costs have also risen, raising concerns that inflation will remain elevated.
Rising oil prices may have some benefits for Brazil, a country that produces over 3.95 million barrels per day. However, soaring prices may also affect economic growth by stimulating inflation.
The next important USD/BRL news will come from Brazil, where the statistics agency will publish the latest producer inflation report. Economists see the headline PPI coming in at minus 5.3%, lower than the previous 4.5%. Brazil will also release the latest services and composite PMI data.
ADP will publish the latest private payrolls data, which are expected to show an increase of 50k jobs in February. This report comes two days before the US releases the official jobs report.
USD/BRL Technical Analysis
The daily chart reveals that the USD/BRL pair has rebounded in the past few days. It jumped from a low of 5.1155 on Monday to 5.30. Its lowest level this week was notable as it coincided with the descending trendline that connects the lowest levels since July last year.
The Relative Strength Index (RSI) has jumped from the oversold level of 23 to the current 58. It has also risen slightly above the 50-day moving average.
The pair will likely remain in this range this week and then resume the downtrend in the medium term as it has formed a head-and-shoulders pattern.