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Domestic Fiscal Deterioration Dominates, DI Curve Stabilising

BRAZIL
  • DI swap rates have opened 12-15bp lower Monday, unwinding some of the sharp 50bp move higher in yields late on Friday session. The move on Friday followed remarks from Finance Minister Haddad, which implied that the government would have difficulty complying with its own fiscal rules. He suggested that he won’t be able to convince President Lula of the need to reduce spending, and that in the end he will have no choice but to change the fiscal framework that lawmakers approved last year.
  • Pressure on DI swap rates have been mirrored in analyst expectations, with today’s latest Focus survey showing another increase for the year-end 2025 Selic rate forecast.
  • BRL also came under further pressure late Friday, with USDBRL rising above key resistance at 5.2869, the Apr 16 high and bull trigger and piercing 5.3330, 76.4% of the Nov 17 ‘22 - Jul 28 ‘23 bear cycle. After opening lower on the open today, the pair has reversed and is now testing above Friday’s highest levels. Downtrend resistance, drawn from the 2021 highs, comes in at 5.3891 and above here, markets will focus on the psychological 5.50 mark.
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