With the Brazilian economy unexpectedly keeling over in the past two weeks, following the trucker strike protesting surging gas prices which has effectively paralyzed the nation, coupled with an oil-worker strike which has led to a sharp drop in state revenues, and last week resulted in the resignation of Petrobras CEO Pedro Parente, the country’s currency has been in freefall in recent weeks, plunging from 3.55 to 3.75 since May 10, amid concerns of a sharp economic slowdown.
And moments ago, the Brazilian central bank became the latest Emerging Market whose central bank was forced to intervene in the FX market amid relentless dollar strength, as the USDBRL spiked above 3.80, the highest level since March 2016, when Emerging Markets were crashing following the Chinese devaluation.
- BRAZIL’S BCB RAISES INTERVENTION IN FX AS BRL BREACHES 3.80/USD
- BRAZIL TO AUCTION UP TO 30,000 FX SWAPS JUNE 5
As Bloomberg explains, the Brazil central bank announced a new auction of up to 30,000 FX swaps 12:20pm-12:30pm, with results 12:40pm, local time; this means another 1.5BN on top of the usual 750MM.
The intervention managed to halt the BRL’s descent, and after sliding just below 3.80, the USDBRL is back down to 3.77
While it is unlikely that this latest intervention will be able to sustain the selling, especially if Brazil’s economy is indeed on the back foot, recall what BofA’s Michael Hartnett said when he showed that of all emerging market “turmoil” indicators, the Brazilian Real crossing 4.00 against the USD is by far the most accurate.
We are almost there again.
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