Brazil’s Real weakened past 4.00 per dollar for the first time in three weeks on Monday as an escalation in the U.S.-China trade war sent emerging markets reeling and a weekly snapshot of domestic growth forecasts fell to a new 2019 low.
The Real currency traded as low as 4.0043 per dollar, its lowest since April 25 and about 1% weaker than Friday’s close. The Real suffered with other emerging market currencies as Beijing retaliated on Monday with countermeasures to U.S. tariffs on Chinese imports.
MSCI’s emerging market currency index wiped out all of its 2019 gains. The benchmark Bovespa stock market opened 2% lower. “We remain defensive on emerging market currencies,” analysts at Citi wrote in a client note on Monday.
Brazil’s domestic economic outlook continued to darken, with the central bank’s weekly survey of nearly 100 financial institutions on Monday showing the median 2019 growth forecast trimmed further to 1.45%.
That’s the bleakest outlook so far this year for the economy. The median forecast was 50 basis points higher only four weeks ago at 1.95%, and over a full percentage point higher in January at 2.55%.
The view is growing that the economy shrank in the first quarter and has failed to recover much, if at all, in the second quarter.
Brazil’s GDP grew by 1.1% in each of the last two years, and it looks like 2019 will not be much better, even if the government can pass its flagship pension reform bill.
Brazil’s Real has now lost around 3% this year, and at 4.00 per dollar is significantly undershooting many analysts’ earlier forecasts that it could firm towards 3.60 per dollar this year.