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BRAZIL: BRL Reacting Favourably to China Stimulus, Hawkish BCB Lean

BRAZIL
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  • China stimulus has created an optimistic backdrop for risk sentiment on Tuesday and the favourable reaction across the commodities complex has boosted the Brazilian real at the open. USDBRL reached as high as 5.60 on Monday amid renewed fiscal concerns, however, the positive reaction for emerging market currencies today has helped USDBRL trade to fresh lows on the week, around 5.4700.
  • As a reminder, Deputy Finance Minister Durigan said Brazil will keep the 2024 fiscal target and comply with it, talking at a press conference to explain the latest budget report on Monday.
  • Furthermore, comments from BCB Governor appear to be assisting the latest move lower, with Campos Neto highlighting that CPI expectations are very uncomfortable and that the labour market remains very strong. While he was clear on the unanimous decision to not provide guidance, his rhetoric could tilt expectations towards the BCB gradually increasing the pace of policy tightening.
  • Indeed, Goldman Sachs believe that “despite no explicit forward guidance at this stage it is quite likely that the Copom will accelerate the pace of rate hikes to 50bp at the next meeting.”
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  • China stimulus has created an optimistic backdrop for risk sentiment on Tuesday and the favourable reaction across the commodities complex has boosted the Brazilian real at the open. USDBRL reached as high as 5.60 on Monday amid renewed fiscal concerns, however, the positive reaction for emerging market currencies today has helped USDBRL trade to fresh lows on the week, around 5.4700.
  • As a reminder, Deputy Finance Minister Durigan said Brazil will keep the 2024 fiscal target and comply with it, talking at a press conference to explain the latest budget report on Monday.
  • Furthermore, comments from BCB Governor appear to be assisting the latest move lower, with Campos Neto highlighting that CPI expectations are very uncomfortable and that the labour market remains very strong. While he was clear on the unanimous decision to not provide guidance, his rhetoric could tilt expectations towards the BCB gradually increasing the pace of policy tightening.
  • Indeed, Goldman Sachs believe that “despite no explicit forward guidance at this stage it is quite likely that the Copom will accelerate the pace of rate hikes to 50bp at the next meeting.”