USD/BRL to tick down towards the 5.10 mark by year-end – MUFG

During August the Brazilian real appreciated against the US dollar from 5.1498 to 5.1256. Other issues are driving BRL than the macroeconomic fundamentals. All in all, economists at MUFG bank stick to their USD/BRL 5.10 year-end forecast.

Real to shrug off political/fiscal risks

“The BRL has been driven basically by market expectations and risks than by the macroeconomic fundamentals. Indeed, the external fundamentals remain solid despite the several crises in recent years and the pandemic.” 

“The hawkish Central Bank has increased the Selic policy rate by 325 bps since March and signalled further hikes ahead, turning the BRL into a more attractive carry-trade currency.”

“In our baseline scenario, we consider that the political tension will recede during the second half of 2021. The gradual improvement of economic conditions and the labour market coupled with the easing of restrictions because of the advance of vaccination will improve the president’s popularity helping to ease political noise.” 

“We consider that we won’t have a strong deterioration of the fiscal situation, although some concessions to put part of expenditures out of the spending cap next year are becoming much more likely.” 

“We keep our call of USD/BRL at 5.1000 by year-end.”