USD/BRL: Brazilian market provides reasons to sustain a move to 5.10 by end-2020 – MUFG

In July, the Brazilian real, benefitted by the improvement of external and domestic markets, appreciated against the US dollar from 5.4394 to 5.1851. The improved political and economic outlook may lead the USD/BRL to the 5.10 level by year-end, according to economists at MUFG Bank. 

Key quotes

“A kind of truce among the branches of power as the lack of polemic statements coming from the Executive didn’t reverberate negatively either at the Congress or Supreme Court.” 

“One of the reasons for the economic recovery is the re-opening of the economy in several parts of Brazil, although the pandemic is still far from control, but it has stabilized at a high level.”

“The better political/economic environment improved the popularity of the president as around 30% assess the government positively. Altogether, the political noise and odds for the presidential impeachment almost vanished. Last but not least, Congress resumed the economic agenda prioritizing at this moment two bills: a tax reform and new natural gas sector regulation. The tax reform is very complex and it will take several months of discussion, but the important point is that Congress is still prone to advance the economic agenda after the Covid-19 crisis and the several tensions with the Executive.”

“Taking into consideration all these issues and considering the pandemic under gradual control along the second half, there is room for BRL appreciation to our forecast of 5.1000 by the end of 2020.”