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BRL, DI Swap Rates Remains Under Pressure

  • Incoming finance minister, Fernando Haddad, vowed to quickly present a plan to ensure the sustainability of public debt despite having no intention of cutting spending in the first year of government.
  • It remains unlikely that market participants are to react positively to Haddad’s remarks as key posts continue to be occupied by people widely linked with Workers’ Party leftist agenda.
  • Swap rates remain under intense upward pressure, with the long-end rising more than 20 basis points Tuesday and continuing that trend at today’s open. In similar vein, USDBRL has risen a further 1% to start Wednesday’s trading session.
    • The pair remains below its recent highs having recently breached resistance at 5.4286, the Sep 29 high and pierced 5.5142, the Jul 21 high and a medium-term bull trigger in November. A clear break of the latter is still required to cancel a bearish theme and instead signal scope for a stronger move higher near-term.
  • Separately, the spending bill should be voted in the Lower House floor between Dec. 15 and 20, said lawmaker and bill’s rapporteur Elmar Nascimento.

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