Brazil: USD/BRL projected to end year at 3.30 - Rabobank

Mauricio Oreng, Senior Brazil Strategist at Rabobank, points that they project USD/BRL at 3.30 for the end of this year and 3.70 for the end of next year, as they anticipate an election-led rally late in 2018 and a re-pricing on lower global liquidity in 2019.

Key Quotes: 

“The BRL has been on a weakening path since late January, moving all the way from 3.13/USD (on 25-Jan-2018) to around 3.40/USD (as of late). The Brazilian currency has stood amid the worst performers among the major currencies.”

“What our numbers do indicate (and, we believe, with a reasonable degree of accuracy) is that while the BRL weakness from 3.13 (25-Jan-2018) to 3.27 (21-Mar-2018) was highly led by  global market conditions, with the subsequent jump to just below 3.40 (as of now) driven by factors not captured in our models. As per the latter, we believe greater political fears and lower interest rate are very good candidate for drivers.”

“We look for USD/BRL at 3.30 for the end of this year, as we anticipate an election-led rally (i.e. with strengthening of political groups supporting economic reforms) offsetting effects of a continued reduction in global liquidity (as DM central banks normalize policy). We anticipate the latter will play a more important role for the BRL in 2019, as we look for USD/BRL at 3.70 for the end of next year.”