USD/BRL: Carry trade demand should dominate and drive the pair down to the 4.80 area – ING
|After the FOMC decision later today, Brazil’s central bank (Banco Central do Brasil) is widely expected to deliver another 50 bps rate cut. Economists at ING analyze USD/BRL ahead of the central banks’ decisions.
BCB to deliver another 50 bps rate cut
The Brazilian interest rate swap strip prices in slightly more than 50 bps cuts at each of the three BCB meetings this year (including today’s meeting). There could be some mild disappointment here if the BCB sticks firmly to the script of 50 bps cuts for the foreseeable future.
Yet strong growth in Brazil, solid demand for the carry trade and highly positive real rates provide a good underpinning for the currency.
Assuming no hawkish shocks from the Fed today, carry trade demand should dominate and drive USD/BRL down to the 4.80 area.
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