The Brazilian real (BRL) has been one of the main beneficiaries after the rise after the US elections among emerging currencies along with the lira ture (TRY), explain analysts at Credit Suisse. They have lowered the USD / BRL target range to 5.18-5.65 but continue to see medium-term concerns about the fiscal outlook that ultimately limit the scope of the BRL’s strength.
Key statements:
“The prospect of a more active intervention by the BCB in a month in which the flow dynamics are expected to be uneven in favor of the USD / BRL rise represents a significant support change relative to our assessment at the end of September.”
“The internal political risk has been benign in recent weeks, with the passage of the first round of the municipal elections seen in the markets as a politically more favorable backdrop for the fiscally conservative economic policies promoted by the Minister of Finance, Paulo Guedes. All things being equal, this represents a tentative shift from the less market-friendly tone that dominated domestic political debate in the second and third quarters, and could prove more favorable to the BRL if it persists. In our opinion, the possibility of a rapid negative change in the political risk bias remains considerable, but in the meantime, we recognize that this development is constructive on the margin. “
“In general, we see that the balance of factors limits the potential for strength of the BRL in the medium term and leaves the margin for further weakness intact. However, we acknowledge that the external market environment has become more favorable for emerging market currencies and, on the local front, we note that the increased prospects for BCB intervention is an important factor in light of the current approach. of the market on the negative implications of the BRL of the disarmament of hedge funds. This leads us down and narrowing our USD / BRL target range – we see declines capped at around 5.18, and we see spikes to the upside likely capped at around 5.65“.
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