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FOMC and BCB May Weigh Further On USDBRL At The Open

BRAZIL
  • In the aftermath of the FOMC’s summary of economic projections and Chair Powell’s press conference, the greenback remained heavy, in line with the sharp move lower for US yields. Combined with this, the associated rally for major equity benchmarks provided an additional tailwind for broad EMFX and the Brazilian real, prompting USDBRL to close back below the significant 5.00 level.
  • The marginally hawkish shift from the BCB, although broadly in line with expectations, may continue to weigh on USDBRL at Thursday’s open. This may risk the currency pair returning to its prior familiar range of 4.90-5.00, having threatened a bullish breakout earlier this week. Initial key support to watch lies at 4.9535, the Mar 14 low, with more meaningful support located at 4.9027, the Jan 19 low.
  • Separately, analysts have noted the BCB’s caution could place moderate upward pressure on the DI swaps curve, although the impact may be tempered by the extension lower for US yields in early trade Thursday. Focus may quickly turn to political developments, with the Government’s Budget Freeze Report expected to be released on Friday.
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