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USDBRL Maintains Bullish Bias, DI Swaps Shift Higher

BRAZIL
  • Despite a slightly weaker open, USDBRL is rising on Monday, once again narrowing the gap with last week’s highs and notable resistance just above the 5.00 handle. Given the significance of last week’s technical break, 4.9499 now becomes the immediate short-term support level for upcoming sessions.
  • Both the stronger USDBRL and shift higher for DI swap rates are reflective of the US yield curve bear steepening, which has seen the 10-year yield rise to 4.34%, the highest level since 2007. Both the belly and the long end of the DI curve have risen by between 8-10bps.
  • Although today’s BCB economist survey showed 2023 year-end inflation higher at 4.90% (from 4.84%), this was actually a more optimistic forecast than central bank officials’ comments last week, who saw a 40bps impact following the gasoline price hike.
  • The latest Cajado comments on the meeting to discuss the fiscal framework may provide some temporary relief support for local assets, however, headlines from the BRICS summit and any developments surrounding Lula’s cabinet and congress will be monitored closely.
  • The most notable data for both the currency and the DI swaps curve is the mid-August reading of IPCA inflation, to be released on Friday. The median surveyed estimate sees annual inflation ticking up to 4.12% Y/y.
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