USD/BRL to end the year at 5.25 – Rabobank
01.08.2022, 16:39

USD/BRL to end the year at 5.25 – Rabobank

The USD/BRL is trading at 5.15 at the beginning of the month. Analysts at Rabobank see the pair trading at 5.25 by the end of the year. They see the Brasil Central Bank (BCB) raising rates by 50 basis points at the August meeting. 

Key Quotes: 

“Externally, despite FOMC’s 75-bp hike, Powell says next move is data dependent and the market interpreted the Fed’s move as relatively dovish, especially after the US 22Q2 GDP advance release, marking a technical recession. In the meantime, lockdown risks due to Covid in China remain relatively high, China seeks to prop up the real estate sector amid growing US-China tensions over Taiwan, whereas the outlook for the conflicts in Ukraine remains negative. Domestically, the misery index improves (both IPCA15 CPI inflation and unemployment rates improve) but Lula still leads most polls. Although the DXY dollar index depreciated 0.6% in the week, USDBRL appreciated 6.3% due to the risk-on sentiment. The Ibovespa rose 4.3%, while the local inverted yield curve bull flattened.”

“We still see the BCB hiking 50 bps at its August meeting, then likely staying put until yearend. Although we expect a longer Selic hiking cycle than we did at the beginning of 2022, we believe the Fed will remain hawkish, the USD will recover its safe haven status by yearend,  and the traditional electoral cycle will weigh on the BRL and other local assets going forward. By yearend, we expect the BRL to trade at 5.25.”

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