USD/BRL: Central bank likely to have large influence - Lloyds  Bank

Analysts from Lloyds Bank point out that USD/BRL recent reversal to 3.40 could be sustained if the government address the budget deficit and if the economy recovers.

Key Quotes:

“Higher commodity prices and Brazil’s reform-minded interim government led the real higher against the USD over the past month. If Brazil’s political environment was not so fractious, reinvigorated efforts to address the ballooning budget deficit and kick start the economy would carry a higher probability of success. In turn, that would increase our confidence that the recent reversal in USD/BRL back down to 3.40 – its lowest level since July 2015 – will be sustained.”

“Newly tabled measures, however, are unlikely to be voted on in congress until late

August, after the final vote on suspended President Dilma Rousseff’s impeachment. Until then, Brazil’s central bank, now under new management, will likely have a large influence on which way the currency sways. A smaller current account deficit at least suggests little chance of a return to last September’s historic high of 4.24 for USD/BRL.”