Brazil: BRL now seems more aligned with global market moves - Rabobank

Analysts at Rabobank, see the USD/BRL pair at 3.70 by year-end. The Brazilian real is about to end the week at 3.85, a weekly decline of 0.2%. 

Key Quotes: 

“After a re-pricing of domestic (electoral, budgetary) risks in Brazilian assets, the BRL now seems more aligned with global market moves, especially if we take into account its historical high-beta pattern. In a way, this less idiosyncratic BRL sell-off favours interpretations that the Brazilian FX market is more functional at this stage. This certainly helps the Brazilian Central Bank (BCB) keep a more neutral stance, as in recent weeks. After selling USD 43 billion in FX swaps, the monetary authority has been holding its FX swap inventory flat at USD 67.4 billion.”

“Yet our baseline scenario - which by hypothesis assumes the approval of reforms in 2019 - has a country risk projection of 180bps at the end of this year, which is consistent with our yearend BRL projection of 3.70.”

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