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BRAZIL: Additional BRL Volatility Expected, Further Intervention Announcements

BRAZIL
  • USDBRL extended losses through Thursday’s session, following the $8bn auctioned in the spot market. The pair closed around 2.5% lower on the day at 6.14, and further volatility will be expected today given the BCB has announced two further auctions to be carried out. The BCB will offer up to $7b; a spot USD auction of up to $3b at 09:15am, then an FX credit line auction of up to $4b at 10:20am, both Brasilia time.
  • DI swap rates have also experienced extreme volatility, with the belly of the curve experiencing ~100bps of intra-day swings. Yields on DI contracts expiring in Jan ’29 briefly rose above 16% before closing the session closer to the 15% mark. Terminal Selic rate pricing is around 15.35%. The treasury will hold the last auction of public bonds for the week, offers will be disclosed on its website.
  • Outgoing BCB Governor Campos Neto said that this week’s FX intervention wasn’t related to fiscal dominance and was done to counterbalance atypical FX outflows. He reiterated that the BCB only intervenes when there is dysfunction in the FX market and that they don’t target any FX level. He said that demand in yesterday’s spot auctions was much greater than expected. Separately, the senate has approved the main text of the first fiscal package bill.
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  • USDBRL extended losses through Thursday’s session, following the $8bn auctioned in the spot market. The pair closed around 2.5% lower on the day at 6.14, and further volatility will be expected today given the BCB has announced two further auctions to be carried out. The BCB will offer up to $7b; a spot USD auction of up to $3b at 09:15am, then an FX credit line auction of up to $4b at 10:20am, both Brasilia time.
  • DI swap rates have also experienced extreme volatility, with the belly of the curve experiencing ~100bps of intra-day swings. Yields on DI contracts expiring in Jan ’29 briefly rose above 16% before closing the session closer to the 15% mark. Terminal Selic rate pricing is around 15.35%. The treasury will hold the last auction of public bonds for the week, offers will be disclosed on its website.
  • Outgoing BCB Governor Campos Neto said that this week’s FX intervention wasn’t related to fiscal dominance and was done to counterbalance atypical FX outflows. He reiterated that the BCB only intervenes when there is dysfunction in the FX market and that they don’t target any FX level. He said that demand in yesterday’s spot auctions was much greater than expected. Separately, the senate has approved the main text of the first fiscal package bill.