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BRAZIL: IPCA Inflation Due Tomorrow, USDBRL Steady Around 5.50

BRAZIL
  • Despite the latest Focus survey of economists maintaining its consensus estimate for the year-end Selic rate at 10.50%, the survey’s adjustment to the 2026 year-end rate projection has added to the developing hawkish narrative in recent months. Analysts now see the Selic rate at 9.50% by the end of 2026, compared to 9.00% just a week ago.
  • Amid the deterioration of inflation expectations and the heavily data dependent stance of the central bank, market participants remain cautious of the central bank’s reaction function this year, with differing views on whether the BCB make tighten policy during the remainder of this year. Mid-month inflation data is scheduled for tomorrow, where the annual rate is expected to fall to 4.34% from 4.5% at the July reading.
  • Pressure on equities has seen some very modest pressure on the Brazilian real, although USDBRL trades in a relatively confined range on Monday. Bullish conditions in remain intact for the pair and the bear cycle over much of August is considered corrective. Support around the 50-day EMA, has been breached, however, the pair has recovered from its most recent lows. A continuation higher would open 5.6721. Key support has been defined at 5.3768, the Aug 19 low.
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