Covering 70 countries, our composite indicator system gives an early indication of exchange rate pressures by relying on the most recent data and the identification of various misalignments.
Brazil has a free-floating exchange rate posing a challenge to the prediction of currency value corrections as new information is promptly reflected in the currency price thanks to market forces.
In the summer of 2014, our composite indicator, designed to identify imbalances in the economy, correctly signaled that negative pressures were mounting, highlighting the risk of a weaker Real. We were able to identify currency pressures arising from the declining terms of trade governing Brazil's main exports due to lower commodity prices and deteriorating competitiveness. In December 2015, Bloomberg reported that "investors turned a blind eye to the imbalances building up during the boom years".
The Macro Risk monitor proved to be correct in anticipating a strong correction in the Brazilian exchange rate.
Want to learn more? Feel free to contact us.