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BRL Weakness Exceeding EM Peers, DI Curve Shifts Higher

BRAZIL
  • Broad greenback strength and associated EM FX weakness is underpinning a solid bounce for USDBRL today, which is extending the bounce from initial support at 4.8416, the Aug 10 low. The pair is now up over 1% on the session and the real’s declines are now exceeding that of ZAR (-0.76%) and HUF (-1.00%).
  • As mentioned, 5.0039, the Jun 2 high remains the key level on the topside.
  • In similar vein, negative local sentiment is reverberating through to the swaps curve, with DI swap rates rising between 10-18bps. Underperformance has been seen in the belly & long end of the curve, paring the more optimistic sentiment since August 21 with no particular headlines driving today’s price action.
  • Bank stocks are negative across the board which could be related to the potential Interest On Equity (IOE) termination that the government is planning. A Bloomberg article says that this could be appear on the budget proposal that the government will send later today.
  • GDP data is scheduled for tomorrow, shortly before the US employment figures. Brazil’s economy likely expanded in the second quarter, albeit much more slowly than the 1.9% quarter-on-quarter growth between January-March.
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