The impacts of the exchange rates on international businesses

Following the US dollar fluctuations has become a routine in the life of any professional that acts in the foreign trade area, particularly if this specialist’s international transactions involve the Brazilian territory.

Speculations destabilize the market, slow the flow of buying and selling down and make buyers lost, without knowing in which direction to go. How importing from markets where the currency is so devalued? How to make a sale to the foreign market in this current economic environment? These are questions that dominate the current scenario.

 

How does the US dollar affect economy?

Understanding how the US dollar affects the economy is a crucial point because this is the currency that will be taken as a reference in commercial transactions.

It is assumed that the US dollar will affect all the other currencies and, thus, that its drop or its increase shall set the shape of the rest of the market. When the US currency is valued against the Brazilian Real it is the time to invest in sales to the international market and when the US dollar devalues, it means the moment is favorable for buying from foreign markets.

 

We can deduce from this that, to the exporter, it is beneficial that the Brazilian Real is devalued. With the current volatile market, with the Brazilian currency devalued, exporters can negotiate and put a better price on their products, to the extent that, in Brazil, the foreign currency will be worth more on par with the Brazilian currency. In plain language, the US dollars will render greater purchasing power to exporters that will receive payments in US dollars and reverse their profit in Brazilian Reais. The importer, in turn, will be able to acquire a product with a value below his/ her local currency.

Currency exchanges as Brazilian’s main ally

Currency exchange rates variations can be attractive to buyers who want to invest in Brazil, especially for importers who want to invest in cellulose, on the footwear and on the textile sectors. The input becomes so competitive to the point that it can be considered equivalent to the Asian market. Although the workforce can be more expensive compared to other foreign markets such as China and India, for example, thanks to the strength of the United States dollar and the devaluation of the Brazilian Real, the price of the final product is an advantage in foreign markets.

In June 2016 Brazil reached a deficit of 2.479 million dollars. The Central Bank predicts that, by the end of the year, this deficit will be of about 15 billion dollars in transactions. However, with a trade balance governed only by exports, we may have an economic imbalance, as foreign capital enters, but few inputs are purchased by imports.

Both exporters and importers expect a balance, but very pessimistic hopes are being observed throughout the months of 2016. We must be attentive to the movement of foreign exchanges and set a pugnacious behavior in order to make it possible to design the monetary scenario, based mainly on the US dollar, the currency that governs all the monetary policy, and hope that, this way, it will be possible to expand business and have purchasing power abroad.

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