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BRL Eroding Monday’s Losses With Sentiment Bolstered

BRAZIL
  • The Brazilian Real continues to be the best performing currency in 2022 and despite yesterday’s sell-off in risk, USDBRL gains were limited to the 5.10 mark. The pair trades 0.6% weaker this morning and close to unchanged for the week.
    • Scope is seen for weakness towards 4.8934, the Jun 25, 2021 low. Resistance is at 5.2190, the Mar 2 high. The bear trigger is 4.9943, the Mar 23 low.
  • Domestic focus turns to Friday’s IPCA inflation data which is expected to print 10.46% Y/y before next Wednesday’s Copom decision.
  • Markets continue to see a 100bp hike to the Selic rate as the most probably outcome, however, a more prolonged hiking cycle is equally likely.
  • The government is currently discussing temporary subsidies to curb fuel prices, which could cost as much as 37b reais, Globo newspaper reports, citing unidentified members of the executive branch. (Bloomberg)
    • Subsidies would help contain the rise in diesel, gasoline and cooking gas prices over a period of three to six months.
    • Govt has not yet settled on the details of the measure, according to Globo.
    • Idea under discussion is to use Petrobras’s dividends to pay the state-run oil company and importers to hold prices, a measure similar to what had been done in 2018 to bypass the truckers’ strike.
    • Valor reported that Lower House President Lira is said to prefer the first option, leaving the Petrobras pricing policy unchanged.
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