USD/BRL: Real should continue to find demand this summer – ING

Front-loaded tightening cycle in Brazil should favour out-performance of the Brazilian real despite the recent correction, in the opinion of economists at ING.

Brazil’s record trade surplus position provides BRL insulation

“USD/BRL has corrected sharply from a low at 4.89, yet we suspect investors will be looking to sell the rallies this summer.

“On the COVID-19 side, cases numbers look to have turned lower and Brazil’s vaccination rates – 37% of the population having received the first dose – are not bad by international standards.” 

“Keeping BRL supported should also be a hawkish BACEN. Minutes to the 16 June meeting showed a BACEN thinking of shifting to 100bp from 75bp rate hikes – perhaps taking the Selic rate to 5.25% at the 4 August meeting.”

“We expect commodity prices to hold gains this year, thus Brazil’s record trade surplus position also provides BRL insulation.”