BRAZIL: USDBRL Holds Near Cycle Lows, Key Copom Meeting Next Week
Dec-05 11:26
- USDBRL traded down to three-week lows early yesterday, as soft Q3 GDP data supported the case for a start to rate cuts early next year, before unwinding the move. For USDBRL, a break of key support at 5.2638, the Nov 11 low and 5.2405 (Jun 6 2024 low) would open 5.2000 and 5.0449, the May 2024 low. Initial resistance is at the 50-day EMA at 5.3621.
- Meanwhile, Congress approved 2026 budgetary guidelines yesterday, which establishes a timeframe to execute 65% of mandatory budget amendments by July 2026. The guidelines included an amendment to allow up to BRL 10bn in expenses from SOE’s to be excluded from the 2026 fiscal target. Finance Minister Haddad indicated that this is directed at the planned restructuring of Brazil’s postal service.
- With a light calendar today, focus turns to next week’s key IPCA inflation data which are due just ahead of the BCB interest rate decision on Wednesday. Amid declining inflation expectations and softening economic activity, a further moderation of inflation should pave the way for a start to rate cuts in Q1, perhaps as soon as the January meeting.
- While the Copom is widely expected to remain on hold at 15% next week, it could soften its forward guidance, including removing the reference to being willing to hike rates further if necessary.
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STIR: Fed Rates Steady Before Important Data Updates
Nov-05 11:15
- Fed Funds implied rates hold yesterday’s modest decline in risk-off moves ahead of a more notable docket today with the October ADP and ISM Services reports plus any spillover to front rates from Treasury’s QRA at 0830ET.
- Dec FOMC pricing still holds nearly all of the hawkish adjustment seen after Powell noted a strongly divided committee around December cut prospects at Wednesday’s press conference.
- Cumulative cuts from 3.87% effective: 17bp Dec, 26bp Jan, 35bp Mar, 41.5bp Apr and 56bp Jun.
- SOFR futures are mostly 2 ticks higher on the day looking out to end-2027, with the terminal implied yield edging a little lower to 3.075% (H7) after Monday’s 3.115% highest close since August.
- The SOFR implied terminal yield
- Today sees a pause in scheduled Fedspeak before a heavy schedule tomorrow with Barr, Hammack, Musalem, Paulson, Waller and Williams.
