Brazilian real to weaken

Yann Quelenn Swissquote Bank Ltd

As Brazil’s central bank is expected to drop its prime lending rate to an all-time low of 7%, and demand for the USD rises with the US Federal Reserve’s impending rate hike, the real should continue to weaken against the greenback. Since the start of the year, the USD/BRL has been trading between 3.1 and 3.4. Brazilian rates have fallen by half in the past year, and 2018 might see further cuts. Capital outflows are likely to accelerate, as the interest-differential to the USA narrows.

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The interest rate cut is driven by inflation, which surprisingly stands way below the official target. Banco Central do Brasil is targeting inflation at 3-6%, yet consumer prices have dived from double digit to less than 2% growth. Inflation for November is expected to print at 2.88% annually.

Author

Yann Quelenn

Swissquote Bank Ltd

Yann Quelenn is a Market Analyst at Swissquote Bank with strong technical and financial background. Previously, he worked as FX Trader at Banque Privée Edmond de Rothschild and as Portfolio Manager at Polaris Investment in Luxembourg.

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