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BRAZIL: Pressure on Local Assets Extends, BRL Declines 2.8% This Week

BRAZIL
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  • While broad dollar indices have firmed this week, domestic factors have exacerbated the Brazilian real’s decline, which has extended to 2.8% in recent trade. USDBRL has risen 1.04% on the session, pushing towards 5.90. The pair has notably risen above it’s 50-day EMA for the first time since Jan 22, potentially exacerbating topside momentum.
  • The latest news on Gleisi Hoffman’s appointment to lead Brazil’s Ministry of Institutional Relations may also be working against the local currency. This places a harsh critic of the central bank (regularly criticising the BCB over high interest rates) and fiscal austerity in charge of leading political negotiations with congress.
  • A series of surveys have showed that President Lula's approval ratings have hit record lows, raising market participant's fears that the government may ramp up spending to improve its popularity.
  • These renewed concerns on the fiscal trajectory have pushed local rates higher in sympathy, while weighing on domestic equities. The belly of the DI swaps curve has risen around 15bps on Friday, with contracts expiring in Jan 2030 extending this week’s shift higher to around 60bps (14.93% at typing).
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  • While broad dollar indices have firmed this week, domestic factors have exacerbated the Brazilian real’s decline, which has extended to 2.8% in recent trade. USDBRL has risen 1.04% on the session, pushing towards 5.90. The pair has notably risen above it’s 50-day EMA for the first time since Jan 22, potentially exacerbating topside momentum.
  • The latest news on Gleisi Hoffman’s appointment to lead Brazil’s Ministry of Institutional Relations may also be working against the local currency. This places a harsh critic of the central bank (regularly criticising the BCB over high interest rates) and fiscal austerity in charge of leading political negotiations with congress.
  • A series of surveys have showed that President Lula's approval ratings have hit record lows, raising market participant's fears that the government may ramp up spending to improve its popularity.
  • These renewed concerns on the fiscal trajectory have pushed local rates higher in sympathy, while weighing on domestic equities. The belly of the DI swaps curve has risen around 15bps on Friday, with contracts expiring in Jan 2030 extending this week’s shift higher to around 60bps (14.93% at typing).