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BRAZIL: BRL May Receive Boost from Hawkish Copom Messaging

BRAZIL
EM BulletBulletGlobalEmerging Market NewsRegion
  • USDBRL may open lower on Tuesday, owing to a more stable risk backdrop and the marginally hawkish development in the latest BCB minutes. An acknowledgement that the committee (unanimously) are willing to hike rates if conditions make it appropriate may offer a short-term boost for the Real, which briefly reached a three-year low on Monday.
  • Additionally, the minutes showed that “recent movements in some of the conditioning factors for inflation dynamics, such as inflation expectations and the exchange rate, were thoroughly discussed.”
  • Discussion of the weak exchange rate and the potential for its persistence may have to be incorporated into the Copom’s projections and is highlighted as one of the key reasons for additional vigilance. While unlikely to prompt immediate speculation of direct FX intervention, the increased caution is noteworthy if conditions in the currency market were to become disorderly.
  • Overall, bullish conditions in USDBRL remain intact following the breach of key resistance at 5.7008, the Jul 2 high. The break confirms a resumption of the uptrend and opens 5.8981, the 1.764 projection of the Dec 27 ‘23 - Apr 16 - May 3 price swing. On the downside, initial support lies at 5.6034, the 20-day EMA.
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  • USDBRL may open lower on Tuesday, owing to a more stable risk backdrop and the marginally hawkish development in the latest BCB minutes. An acknowledgement that the committee (unanimously) are willing to hike rates if conditions make it appropriate may offer a short-term boost for the Real, which briefly reached a three-year low on Monday.
  • Additionally, the minutes showed that “recent movements in some of the conditioning factors for inflation dynamics, such as inflation expectations and the exchange rate, were thoroughly discussed.”
  • Discussion of the weak exchange rate and the potential for its persistence may have to be incorporated into the Copom’s projections and is highlighted as one of the key reasons for additional vigilance. While unlikely to prompt immediate speculation of direct FX intervention, the increased caution is noteworthy if conditions in the currency market were to become disorderly.
  • Overall, bullish conditions in USDBRL remain intact following the breach of key resistance at 5.7008, the Jul 2 high. The break confirms a resumption of the uptrend and opens 5.8981, the 1.764 projection of the Dec 27 ‘23 - Apr 16 - May 3 price swing. On the downside, initial support lies at 5.6034, the 20-day EMA.