The aim of this chapter is to analyze how the exchange rate dynamics has affected the manufacturing production and jeopardized structural change in Brazil since the adoption of the Inflation Targeting Regime (ITR) in 1999. The analysis shows that the very subordinated position of the Brazilian real in the currency hierarchy results in a cyclical and volatile behavior of the exchange rate under the ITR that has an asymmetrical impact on the manufacturing production in the appreciation and depreciation phases over capital flows cycles. Our results indicate that investment occurs when domestic currency appreciates, but only reinforces the existing productive structure, and imports increase. On the other hand, when the national currency depreciates, the positive effect on manufacturing production is not enough to boost manufacturing growth for two reasons. First, this depreciation reflects an unfavorable international scenario. Second, the deindustrialization process in force since the 1990s that was fostered by the long-lasting appreciation phase under the ITR between 2003 and the outbreak of the global financial crisis of 2008-2009.