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Analysts Remain Optimistic On BRL Despite Policy Easing

BRAZIL
  • According to HSBC, BRL should make substantial gains once risk sentiment improves despite the larger-than-expected rate cut at last week’s BCB meeting. (BBG)
  • “The rate cuts will not be a very significant headwind for the BRL given its relative real yield advantage in 2024, strong external sector data and solid fundamentals vs. other currencies”.
  • In line with the most recent minutes released this morning, HSBC also mentions the high bar for BCB to increase the pace of rate cuts, adding that the balance of domestic policy risks point in the right direction. They do attach the caveat that gains for the Real may be limited against the USD in the short term due to poorer risk sentiment across global markets.
  • Separately, hedge fund manager Verde Asset Management’s flagship fund opened a long position in the Brazilian real against the US dollar as it expects strong trade-balance data to keep anchoring the currency even as interest rates start to decline, according to an investor note.
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