BRAZIL: USDBRL Knocking on the 5.40 Door Once More

• Alongside the higher beta currencies within the G10 space, the Brazilian real is outperforming today, currently up 0.67% against the dollar. Firmer equity sentiment and lower US yields following the PPI release will be providing headwinds for USDBRL, which is once again knocking on the door of the significant medium-term pivot of 5.40.
• Fleeting attempts below the level have proved short-lived in the last month, however, a daily/weekly close below would be an important step for the pair’s next leg lower. The initial target for the move would be 5.3153, the 61.8% retracement of the Jul 28 ‘23 - Dec 18 ‘24 bull cycle.
• BRL has proved resilient in recent weeks in the face of souring relations with the US regarding trade and the most recent political turbulence surrounding the trial of former President Jair Bolsonaro. Furthermore, restrictive monetary policy with the Selic rate at 15% are maintaining the attractiveness of carry strategies.
• On that note, the Copom will meet next week and there should not be any surprises in the post-meeting statement given the firm guidance of maintaining the Selic rate at current levels for “a very prolonged period” to ensure the convergence of inflation to target.
• While most analysts envision this to be the case for the remainder of 2025, a more dovish Fed, further BRL appreciation and the likely desire for easier policy into next year’s election all provide ammunition for a surprise dovish tilt to upcoming communication.

Source: Bloomberg Finance L.P. / MNI