The Brazilian real moved to within a fraction of its all-time low on Monday as investors worried about a deepening recession in Latin America’s biggest economy and the outlook for China.

The currency was trading at R3.9901 to the dollar, a depreciation of 1.13 per cent from Friday’s close and near to its record intraday low of R$4.014 in October 2002.

“All of this hinges on China, which is obviously Brazil’s biggest export partner, if China has a hard landing and commodity prices fall further, then I think all bets are off,” said Neil Shearing of Capital Economics, on the future of the real.

While he said a hard landing in China was not his house’s base case, pessimism is growing over the Brazilian real following a downgrade of the country’s credit rating by Standard & Poor’s earlier this month.

The government of President Dilma Rousseff has been back-flipping on targets to control a rising budget deficit with a deepening recession cutting tax revenue and a rebellious congress refusing to co-operate with her fiscal programme.

The last time the real was this weak was when Ms Rousseff’s mentor and former president Luiz InĂ¡cio Lula da Silva was about to take office.

Then, markets had feared that the former unionist firebrand would scrap the orthodox economic policies implemented by his predecessor, Fernando Henrique Cardoso, and implement a populist programme.

Mr Lula da Silva, however, became a favourite of markets during his eight-year rule starting 2003.

He maintained the economic policies of Mr Cardoso, which included a floating exchange rate, inflation targeting and fiscal responsibility, and he was helped by the rapid growth in Chinese demand for Brazilian commodities during that decade.

Ms Rousseff, on the other hand, who took office in 2011, caught the downdraft in global emerging markets and embarked on a prolonged fiscal stimulus programme and price controls that were criticised by markets as deterring investment.

With talk of impeachment rising in congress, Ms Rousseff is expected to unveil this week a new cabinet that will attempt to distribute power more evenly among her coalition partners and temper growing opposition among lawmakers.

“It is safe to say that the imminent cabinet reshuffle will not solve all of President Dilma Rousseff’s problems,” Eurasia Group said in a research note.

In particular, while the reshuffle might temporarily ease impeachment pressure, it would not help much with overcoming opposition in congress to the fiscal adjustment, Eurasia Group said.

Mr Shearing questioned, however, whether at R4 to the dollar, the real should have much further to weaken, barring any sharper than expected slowdown in China.

Brazilian exports are starting to become more competitive at this level and the country’s industry is better able to compete with imports.

“The real, I think, offers a glimmer of hope,” he said, adding however that strong negative market sentiment could weaken it further in spite of the improving fundamentals.