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- USDBRL has gapped higher to trade print highs of 5.6746, up well over 1% from yesterday's close. The lack of any intervention announcement, via fx swaps or USD spot auctions overnight, has prompted a more significant BRL depreciation as one of the few tailwinds for the currency has been removed.
- Analysts note two potential views on the change in course from the BCB.
- Eroding FX reserves loses value if the government is unable to give any concrete austerity signals which may settle markets.
- On the other hand, officials may be contemplating a different strategy, making FX auctions more sporadic, potentially more effective in discouraging speculative positioning.
- DI swap rates have also extended their upward swing as the weaker BRL is impacting the short-end and belly of the curve, while the lingering fiscal anxieties and likely breach/circumvention of the spending cap puts pressure on the long end.
- These short-term pressures taking focus away from the Copom Decision next week where BCB rhetoric has cemented expectations for another 100bp Selic rate increase to 7.25%.
- Brazil DI Swaps:
- Jan '22 +20 bps at 7.83%
- Jan '23 +47 bps at 10.36%
- Jan '26 +49 bps at 11.57%
- Jan '31 +47 bps at 12.09%