What is USD/BRL?
USD/BRL refers to the exchange rate between the United States dollar (USD) and the Brazilian real (BRL). It represents how much one US dollar is worth in Brazilian reals. For example, if the exchange rate is 4.98, this means that 1 USD is worth 4.98 reals.
The USD is the official currency in several countries, including Ecuador and El Salvador, and is held by central banks and investment institutions. Its stability and dependability make it the preferred currency for international transactions and reserves. The dollar's dominance in trade impacts exchange rates and economic policies globally and serves as a benchmark for nations setting their currencies to the dollar's value.
BRL stands for the Brazilian real, the country's official currency, which is divisible into 100 centavos and is commonly represented as R$. The Brazilian real replaced the cruzeiro real as the national currency in July 1994, with an exchange rate of 1 real to 2,750 cruzeiro real. From 1994 to 1999, the BRL was linked to the US dollar to promote economic stability.
What affects the price of the USD/BRL pair?
The USD/BRL pair's exchange rate is subject to a variety of influences, including those relating to the economy, politics, and markets, just like other currency pairs. Here are some key factors that can impact the USD/BRL exchange rate:
- Interest rates and Central Bank monetary policy: Interest rate decisions by the US Federal Reserve and Banco Central do Brasil (BCB) can have a significant impact on exchange rates. Higher interest rates in a country can attract foreign capital looking for better returns, which can lead to an appreciation of the currency (in this case, BRL). Lower interest rates might lead to currency depreciation. Changes in the monetary policy of central banks, including actions such as quantitative easing or tightening, can impact currency values and also influence exchange rates.
- Trade relations between the US and Brazil: Trade relationships between the two countries can affect exchange rates. Brazil is an exporter of commodities like soybeans and iron ore, and therefore changes in global demand for these products can impact the Brazilian economy and the value of the real.
- Various economic indicators: Economic data such as inflation, Gross Domestic Product (GDP) growth, unemployment, trade balance, and consumer confidence can impact the exchange rate of the USD/BRL pair. Strong economic performance may lead to currency appreciation, while weak economic data can result in depreciation.
What to watch out for when trading USD/BRL?
When trading the USD/BRL forex pair (the US dollar against the Brazilian real), there are several key financial institutions and financial events to watch out for. Those include:
- US Federal Reserve announcements Widely known as “the Fed,” the US Federal Reserve can influence the price of the US dollar through various announcements and financial decisions. Those include raising or lowering interest rates, buying or selling US government bonds, quantitative easing, and forward guidance.
- Banco Central Do Brasil monetary policy decisions such as interest rates aim to tackle inflation.
- U.S. Bureau of Economic Analysis and Department of Labour, and National Statistics (Brasil) for data on Trade Balance, Unemployment Rate, Consumer Price Index (CPI), and GDP.