Analysts at MUFG Bank believe that the Brazilian real has room for near-term gains against the US dollar. They have a trade idea to short USD/BRL at 5.22 and target 4.90.
Not perfect real price improvement in Brazil’s terms of trade
“Unlike other emerging market currencies, the BRL has not benefited much from optimism about China’s reopening since it emerged late last year.”
“The further improvement in Brazil’s terms of trade earlier this year has not been fully reflected in the stronger BRL. It partly reflects the growing concerns earlier in the year, which the BRL assumes will not escalate significantly in the near term and will be further fueled by optimism about China’s reopening of the economy. increase.”
“Long positions in BRL continue to benefit from favorable carry pickup. BCB is expected to raise interest rates to 13.75% in the short term despite government pressure to cut interest rates .”
“Forex market volatility remained low at the beginning of the year, supporting carry trades. Key risks to trading include: i) a sharp rise in the domestic policy risk premium priced into the BRL; ii) Higher US yields will ultimately lead to higher FX and financial market volatility.”