Foreign betting on the appreciation of the dollar against the real hits a record high, reaching $70 billion.

The long position in the dollar can be seen as a bet on the appreciation of the American currency and, consequently, on the outlook for depreciation of the real.

Foreign investor bets on the dollar’s rise against the real hit record levels in yesterday’s session. The long position in the dollar via derivatives (such as futures, mini-dollar, swaps, and currency coupons) held by non-residents reached a historic high, reaching $70.3 billion, according to data released by the Brazilian Market authorities.

The long dollar position can be interpreted as a bet on the appreciation of the American currency and, consequently, on the prospect of depreciation of the real, although market participants remain cautious about this inference as the data may reflect not only directional positions in the foreign exchange market itself but also potential uses of the currency as a hedge. Furthermore, the category of foreign investors may also include Brazilian investors operating through offshore accounts.

Nevertheless, the current level is quite distant from what was observed exactly a year ago. On April 17, 2023, amid a less turbulent external scenario and some optimism about the fiscal agenda in Brazil, the foreign investor’s long dollar position stood at $35.1 billion.

Since then, this position has grown, first with pressure from the long end of the US interest rate curve between August and October, which pushed the position to between $55 billion and $60 billion. Then, with the change in the pricing of interest rate cuts in the US, the position fluctuated between $60 billion and $65 billion in the first three months of the year until reaching the current level, with additional pressure coming from geopolitical tensions and pessimism about the evolution of Brazilian public debt.