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BRL Outperforms Following Below-Estimate IPCA Inflation

BRAZIL
  • Brazilian assets are seeing support on Tuesday as the latest IPCA inflation data came in below expectations. The front-end of the DI swaps curve has shifted 5-7bps lower, the real (+0.73%) is outperforming its regional peers and the Ibovespa is registering gains of around 1.3% since the open.
  • Despite the 5.00 level being pierced in early February, this technical pivot continues to cap the topside for USDBRL overall, and today’s price action sees the pair slip back into its familiar short-term range. Initial key support to watch lies at 4.9025, the Jan 26 low. A breach would be a bearish development.
  • As a sidenote, Citi have pointed out that the government's FX hedge program for green investment should have limited impact on FX outright, but may put upward pressure on XCCY basis in the medium term.
  • On the data front, focus turns to fourth quarter GDP figures due Friday, where annual GDP is expected to increase to 2.2% from 2.0% previously.
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