Brazil: USD/BRL to 5.50 by Q3 – TDS

Analysts at TD Securities see the BCB on hold in the coming months, focusing on targeted FX intervention and maintaining rate support for BRL as it adjusts to the new BoP reality. USD/BLR is trading at 5.011.

Key quotes

“Brazil's balance of payments position was structurally strained before the Covid-19 outbreak, underpinning our bearish BRL view.” 

“We forecast that USD/BRL will trade to 5.50 by the end of Q3, and look for it to stabilize around that level as the global economy recovers from the Covid-19 shock. We see BRL appreciation in Q1'21 to 5.35, 5.10 in Q2'21, 4.90 in Q3 and Q4'21.”

“The BCB in our view is likely to maintain as much interest rate support for BRL as is possible. We continue to see the BCB remaining on hold in the coming months, before forecasting gradual rate hikes of 25bps per meeting beginning in Q4 of this year.”