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Outperforms Regional Peers, Morgan Stanley Maintain Constructive View

BRAZIL
  • The Brazilian real is continuing to hold onto its gains against the dollar through today’s session, with USDBRL approximately 0.65% weaker on the day and at its lowest since Feb 2. Against this backdrop, Morgan Stanley maintain their constructive view on BRL relative to its regional peers, noting that the fundamentals for the currency remain in good shape.
  • In particular, they highlight that carry is still attractive, that positioning looks clean and that trade flows are off to a very strong start this year. The main risk to their view is a potential pick-up in fiscal noise, as congress returns from recess.
  • Nonetheless, they still expect the path of least resistance for USDBRL to be higher, or at best flat at current levels, given their view that USD risks are primarily skewed to the upside. They prefer to be long BRL against regional FX such as CLP (limit order, entry: 192.50), rather than against USD, and emphasise the importance of being selective with entry levels.
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