26 Mar 2015
Politics undermines the BRL – Rabobank
FXStreet (Edinburgh) - Strategists at Rabobank see potential for further weakness in the Brazilian currency in the medium to long term.
Key Quotes
“We remain bearish BRL. Brazil is going to face a very difficult few years regardless of policy but we believe that now is a critical juncture in determining Brazil’s medium to long-term outlook”.
“We are watching the political dynamic very closely as we believe this will be key for both Brazil’s future but also for near term asset price developments”.
“We expect USD/BRL to trade up to 3.50 in 12mths time with some consolidation around mid-year on the back of our view that the Fed will not hike rates then and instead will wait until December”.
“If the political backdrop deteriorates or Brazil’s austerity measures are pared back, then the risk of a downgrade becomes much greater”.
“A more extreme scenario in which Levy leaves his position as Finance Minister (which is not our base case) could trigger a move in USD/BRL north of the 4 handle in short order”.
“In terms of rates, we expect a further 75bp of tightening to take the SELIC up to 13.50% in June with the risk skewed to more over less”.
Key Quotes
“We remain bearish BRL. Brazil is going to face a very difficult few years regardless of policy but we believe that now is a critical juncture in determining Brazil’s medium to long-term outlook”.
“We are watching the political dynamic very closely as we believe this will be key for both Brazil’s future but also for near term asset price developments”.
“We expect USD/BRL to trade up to 3.50 in 12mths time with some consolidation around mid-year on the back of our view that the Fed will not hike rates then and instead will wait until December”.
“If the political backdrop deteriorates or Brazil’s austerity measures are pared back, then the risk of a downgrade becomes much greater”.
“A more extreme scenario in which Levy leaves his position as Finance Minister (which is not our base case) could trigger a move in USD/BRL north of the 4 handle in short order”.
“In terms of rates, we expect a further 75bp of tightening to take the SELIC up to 13.50% in June with the risk skewed to more over less”.