Mauricio Oreng, Senior Brazil Strategist at Rabobank, suggests that their calculations show that external and domestic factors gave nearly equal contributions for the BRL’s outperformance in 2016.
“We confirm the common-knowledge that the key elements behind the BRL last year were the lower country risk and higher commodity prices.”
“For 2017, we estimate that lower U.S. yields (reflecting our scepticism with “reflation”) and slightly higher raw material costs will pave the way for further BRL appreciation, towards 3.05/USD by December. External drivers to account for 80% of the expected BRL move.”
“Risk-wise, our simulations for hypothetical, alternative scenarios of U.S. reflation tilt the odds towards a less strong BRL. However, higher commodity prices offset the impact, limiting the FX rate upside. Our end-2017 forecasting range for the BRL is 3.05—3.25.”
“Our studies point to limited chances for the FX rate to dent the inflation outlook and the expected path of rate cuts ahead by the BCB.”
“The results presented in this report stem from our BRL (fair-value) models. Our baseline projection largely depends on our global scenario (with only one Fed hike) in 2017.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.