BRL: The premium is gone - Rabobank

Sandeep Kanihama FXStreet Contributor

Analysts at Rabobank suggest that their models seem to confirm the perception that the recent rally in BRL follows a reduction of risk premium in Brazilian assets, as financial markets take a sanguine view on the next administration’s willingness and ability to both maintain a credible economic policy and pass reforms in Congress.

Key Quotes

“Year-to-date, the BRL is still down about 11% vis-à-vis the USD, which is one of the worst performances among major currencies. However, our models suggest that about 90% of that depreciation stems from external drivers (e.g. higher U.S. rates), given the BRL’s high-beta pattern. This means that the recent “electoral/fiscal” idiosyncratic premium has fully eroded.”

“The depth, extension and sustainability of this rally in BRL (and other Brazilian assets) will naturally hinge on the perceived outlook and actual delivery of the key macro reforms. We see relevant execution risks ahead, so that we look for FX rate at 3.80 for end-2018 (with huge downside risks) and at 4.00 for end-2019 (with risks skewed to the upside).”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

EUR/USD remains bid, focus stays on 1.1900

EUR/USD has broken its two-day run of losses and is ticking modestly higher on Thursday, hovering around the 1.1880 area as the US Dollar struggles to find clear direction. Weekly Initial Jobless Claims rose more than expected, taking a bit of shine off the Greenback, but markets are largely in wait-and-see mode ahead of Friday’s US CPI release.

GBP/USD sticks to the bid bias, still below 1.3700

GBP/USD is trading with decent gains around 1.3650 on Thursday. Indeed, Cable is attempting to shake off the weakness seen earlier in the week amid another choppy session for the Greenback, while a run of disappointing UK data has so far failed to derail the pair’s tentative recovery.