BRL Clear Outperformer On Monday Despite Disappointing Activity Data

• Bullish price action continues to play out for the Brazilian Real, bucking the subdued trend on Monday in global currencies.
• Dollar indices remain broadly unchanged, however, USDBRL has erased the majority of gains made last Friday. The pair is currently down 1.12% on the day, with DI swap rates falling across the curve, in line with Real gains.
• The modest expansion of economic activity in April came in well below surveyed expectations. Analysts have reported the numbers as reinforcing expectations of substantially weaker Q2 growth. Additionally, newspaper Estado has reported the Bolsonaro administration is mulling actions to tame the energy crisis. This could include consumption restrictions and potentially tariff increases.
• Despite the figures underwhelming estimates and negative domestic newsflow, it is very unlikely to alter the central bank's plans to raise the policy rate to 4.25% at its June 16 meeting.
• Last week's IPCA figures showed monthly inflation for May at a 25-year high for that month and the annual rate above 8% for the first time since 2016.
• USDBRL's outperformance, in the face of a depreciating MXN and very tight ranges in G10FX, increases the likelihood of major support at 5.01/02 being tested in the coming sessions. A break of this support may target an initial move to the June 2020 lows around 4.82.

MNI/Bloomberg