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Goldman Sachs Adjust USDBRL Forecasts Higher

LATAM FX
  • To reflect recent market moves and the broader update to their USD forecasts, Goldman Sachs have revised their USDBRL forecasts to 5.10, 5.00, 4.90 in 3-, 6- and 12-months (from 4.80, 4.70, 4.60 previously). GS also mark-to-market our USD/CLP forecasts to 940, 920, 880 in 3-, 6- and 12-months (from 860, 840, 830 previously). In their opinion, BRL’s underperformance has been driven by three factors in particular.
  • First, Brazil’s terms of trade are marginally weaker because the positive contribution of higher oil and meat prices has been offset fully by the YTD decline in iron ore and soybean prices.
  • Second, GS note that country-specific risk (as captured by credit spreads) has been increasing since mid-March, weighing on BRL.
  • Finally, higher US yields also explain a significant portion of the depreciation, especially when taking into account the fact that the Real’s sensitivity to US yields looks to have increased over the last year as the rate differential buffer has narrowed.
  • The BRL now features some risk premium relative to its typical market correlations. However, Goldman Sachs think that a friendlier risk environment is likely needed to unlock this value. And, given more recent correlations, the drivers and speed of US yield moves remain key.
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