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Brazil: BRL now seems more aligned with global market moves – Rabobank

Analysts at Rabobank, see the USD/BRL pair at 3.70 by year-end. The Brazilian real is about to end the week at 3.85, a weekly decline of 0.2%.  

Key Quotes:  

“After a re-pricing of domestic (electoral, budgetary) risks in Brazilian assets, the BRL now seems more aligned with global market moves, especially if we take into account its historical high-beta pattern. In a way, this less idiosyncratic BRL sell-off favours interpretations that the Brazilian FX market is more functional at this stage. This certainly helps the Brazilian Central Bank (BCB) keep a more neutral stance, as in recent weeks. After selling USD 43 billion in FX swaps, the monetary authority has been holding its FX swap inventory flat at USD 67.4 billion.”

“Yet our baseline scenario – which by hypothesis assumes the approval of reforms in 2019 – has a country risk projection of 180bps at the end of this year, which is consistent with our yearend  BRL projection of 3.70.”

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