FXStreet (Edinburgh) – Strategist Ilan Solot at BBH sees the Brazilian central bank tightening its monetary policy further at next week’s monetary policy meeting.
Key Quotes
“Governor Tombini’s newfound hawkish inclination, along with the new appointments to the bank’s board, has led the market to consolidate expectations for a 50 bp hike at next week’s meeting (in line with our long held view)”.
“The market is also pricing in at least another 25 bp hike after that. If all this materializes, Brazil’s base rate would reach 14.00%”.
“In line with our call, the days of a sub 3.00 USD/BRL were short lived. After bouncing off just above the 100-day moving average (around 2.90) in late April, the real has lost over 10% in about a month, and is now ready to test 3.20 (the March high was 3.3148)”.
“Although we remain bearish on BRL, we think the incredibly high carry will, sooner or later, limit or at least slow down the upward movement of USD/BRL. But the trend is upwards, in our view”.
“Moreover, we think that the back end of the curve will remain supported, with yields unlikely to rise much. A hawkish central bank combined with an ailing economy means that the tendency is towards a flatting/inverting curve”.
(Market News Provided by FXstreet)