Investing.com - The U.S. dollar rose to fresh two-decade highs against the Brazilian real on Thursday, as concerns over the deteriorating economic situation and political turmoil battered Brazil’s currency lower.
USD/BRL hit highs of 4.2477, the most since the currency was introduced in 1994 and was last at 4.2117. The real has lost almost 48% of its value against the dollar to date this year.
Brazil’s economy has been hit hard by the global rout in commodities prices and the economic slowdown in China. China is Brazil’s largest trading partner.
Lower commodity prices have contributed to a sharp widening of Brazil’s budget deficit, prompting the government to resort to austerity measures to plug the gap.
A wide ranging corruption scandal at state-controlled oil company Petroleo Brasileiro Petrobras (NYSE:PBR), involving many prominent politicians, have complicated efforts by President Dilma Rousseff to cut government spending and shore up the country’s finances.
Earlier this month Brazil’s rating was downgraded to junk by Standard & Poor’s amid concerns over the growing deficit, and investors expect Fitch Ratings and Moody’s Investors Service to soon follow suit.
The real has also been pressured lower by expectations that the Federal Reserve will soon start to tighten monetary policy.
The drop in the real came despite efforts on Wednesday by the country’s central bank to prop up the currency.
Brazil’s central bank announced auctions of currency-swap contracts and auctions of dollar-repurchase agreements, which temporarily inject dollars into the market.