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The Brazilian real rose on Monday against the US dollar, resuming the upside, but it held below the recent top. Analysts at Rabobank see the USD/BRL trading at 5.25 by year-end and at 4.90 by end-2021.

Key Quotes: 

“Despite noise, volatility subsides externally and domestically, leading us to see USDBRL at 5.25 by year-end.”

“On the external front, despite rising numbers of coronavirus infections and more tensions between the US and China, eventually vaccines and a the approval of a EUR750bn stimulus have been more positive for risky assets. Moreover, domestically, MinEcon Guedes finally unveiled the first phase of the government’s tax reform. As a result, volatility subsided and, after running between 5.08 and 5.39 over the week, the USDBRL ended Friday 24 July at 5.2324, appreciating by 2.9% from the previous week. During this period, the DXY fell by another 1.6%, the 5yr CDS spread narrowed by 6bps to 228bps, and the CRY index rose by 1.6%.”

“We now see the USDBRL trading at 5.25 by year-end and at 4.90 by end-2021. On 24 July, Brazil remained the country reporting the second largest amount of infections (2,343K from 2,046K the previous Friday) and fatalities (or 85,238 from 77,851 a week ago), being second in the globe, in both cases, only to the US.”