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Citi Say Opposing Forces Affecting BRL In December

BRAZIL
  • Citi have noted that opposing forces affecting the Brazilian Real throughout December. Fundamentals have definitely worsened with new Government’s actions calling for more spending, against a tailwind of general USD weakness in past weeks.
  • Position-wise, December was a month filled with spot outflows, which is a seasonal phenomenon, while both offshore (mainly models) and local HFs have sold back some of the USDs bought in November following elections.
  • Going forward, this scenario is likely to persist for a while. Over Q1 Citi expect BRL to outperform on the back of portfolio allocation (highest Real Yield in the world), followed by seasonal inflows from the crop season (March). However, local headlines are likely to provide better entry opportunities.

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