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Political risk and an unsupportive flow outlook leave the Credit Suisse analyst team still reluctant to be structurally BRL bullish. In the meanwhile, strong inflation data and a benign external picture suggest near-term potential for the USD/BRL move lower to extend to 5.00.

Key quotes

“While we continue to see politics and the near-term flow outlook as giving us reason for caution, we acknowledge that hopes for higher carry, perception of BRL being still undervalued and of Brazilian assets under-owned, combined with a firmly constructive external picture suggest that the current move lower in USD/BRL might have scope to extend further before the more technical drivers such as the overhedge flow, or renewed political risk become the driving factors of BRL performance.” 

“We would now see potential for USD/BRL to trade as low as 5.00 in the near-term, at which point we think that positioning for a tactical pullback back towards to 5.30-5.35 area will become attractive again.”