23 Apr 2014
Latin America EM Express: Brazil's economy continues deteriorating ahead of presidential elections
FXStreet (Łódź) - Support for Brazil's President Dilma Rousseff has been waning ahead of the elections scheduled for October, as inflation remains elevated and the economy is slowing. Voters seem to prefer that the urgently needed reforms in the country are carried out under a more market-friendly administration.
„Weak economic data is likely to continue to weigh on support for the incumbent, but increasingly so on BRL too,” Bill Hubard, Chief Economist at Markets.com suggests. „Bad news for the government is likely to remain bad news for BRL in the near term. At more attractive valuations and with a better outlook for reforms after the elections, BRL could find support.”
Meanwhile, Tony Volpon and George Lei, Research analysts from Nomura emphasize that Brazil's „current account deficit has continued to deteriorate despite a steady fall in the real exchange rate since 2011.” They blame the overly loose monetary policy and price controls for this outcome.
„Investors who are now eager to be long BRL for its high carry should be aware that present government policies and the still very high ratio of non-tradable to tradable prices will quite likely impede the improvement in the current account deficits we are seeing in other emerging markets,” the economists warn.
Economic data
Mexico's Jobless Rate released on Tuesday by INEGI showed an increase to 4.8% in March from 4.65% in February, against forecasts of sliding to 4.2%. Seasonally adjusted data also pointed to a rise to 5.25% from 4.73%.
On Wednesday Mexico published also Retail Sales which dropped by 1.3% on a monthly basis in March, a notch down from the previously recorded 0.3% decline and below expectations of a -0.1% result. Year-on-year Retail Sales decreased 1.7%, following a 0.3% fall and against consensus of a 1.2% rise.
The weak data could push the Mexican central bank to cut rates when it meets on Friday, although currently the general expectation is that it will hold rates steady at 3.5%.
On Tuesday Argentinian Economic Activity annual data was released, revealing a 1.3% increase in February, slightly up from January's 1.2% rise.
Technicals
The Brazilian real dropped to a one-week low of 2.2418 against the dollar following the release of China's weak HSBC Manufacturing PMI numbers on Wednesday.
USD/BRL rose by 0.32% to 2.2471 at the moment of writing. On Tuesday the daily FXStreet Trend Index was slightly bullish, with the OB/OS Index neutral. RSI sat at 42 at the last close, and has risen to 66 so far today. Daily 2-StDev Volatility Bandwidth was shrinking at 407 pips, with ATR (14) at 271 pips. The 1D 200 SMA was at 2.3063, while the 1D 20 EMA was at 2.2500.
„Weak economic data is likely to continue to weigh on support for the incumbent, but increasingly so on BRL too,” Bill Hubard, Chief Economist at Markets.com suggests. „Bad news for the government is likely to remain bad news for BRL in the near term. At more attractive valuations and with a better outlook for reforms after the elections, BRL could find support.”
Meanwhile, Tony Volpon and George Lei, Research analysts from Nomura emphasize that Brazil's „current account deficit has continued to deteriorate despite a steady fall in the real exchange rate since 2011.” They blame the overly loose monetary policy and price controls for this outcome.
„Investors who are now eager to be long BRL for its high carry should be aware that present government policies and the still very high ratio of non-tradable to tradable prices will quite likely impede the improvement in the current account deficits we are seeing in other emerging markets,” the economists warn.
Economic data
Mexico's Jobless Rate released on Tuesday by INEGI showed an increase to 4.8% in March from 4.65% in February, against forecasts of sliding to 4.2%. Seasonally adjusted data also pointed to a rise to 5.25% from 4.73%.
On Wednesday Mexico published also Retail Sales which dropped by 1.3% on a monthly basis in March, a notch down from the previously recorded 0.3% decline and below expectations of a -0.1% result. Year-on-year Retail Sales decreased 1.7%, following a 0.3% fall and against consensus of a 1.2% rise.
The weak data could push the Mexican central bank to cut rates when it meets on Friday, although currently the general expectation is that it will hold rates steady at 3.5%.
On Tuesday Argentinian Economic Activity annual data was released, revealing a 1.3% increase in February, slightly up from January's 1.2% rise.
Technicals
The Brazilian real dropped to a one-week low of 2.2418 against the dollar following the release of China's weak HSBC Manufacturing PMI numbers on Wednesday.
USD/BRL rose by 0.32% to 2.2471 at the moment of writing. On Tuesday the daily FXStreet Trend Index was slightly bullish, with the OB/OS Index neutral. RSI sat at 42 at the last close, and has risen to 66 so far today. Daily 2-StDev Volatility Bandwidth was shrinking at 407 pips, with ATR (14) at 271 pips. The 1D 200 SMA was at 2.3063, while the 1D 20 EMA was at 2.2500.