24 Mar 2015
Stay short the Brazilian real – JP Morgan
FXStreet (Edinburgh) - Further downside is expected to return to the Brazilian currency, according to analysts at JP Morgan.
Key Quotes
“Admittedly, political conditions have improved a bit on the margin with the Finance Minister himself negotiating the fiscal measures with Congress”.
“However, we prefer to remain short BRL at the current juncture as we see high likelihood of BCB phasing out of the daily FX hedge supply next month (albeit accompanied by the roll of 100% of the maturing contracts)”.
“In terms of valuation, the USD/BRL level is currently in line with the updated level our model suggests as fair for the real exchange rate to be in equilibrium (3.23, compared to 3.17 previously)”.
“Therefore, the BRL selloff that has taken place YTD (-19% against the US dollar) could be considered just a convergence toward its fundamental valuation as BCB eased FX intervention”.
“That said, idiosyncratic drivers clearly point to a weaker real exchange rate going forward, even undershooting long-term valuations on the back of risk premium”.
Key Quotes
“Admittedly, political conditions have improved a bit on the margin with the Finance Minister himself negotiating the fiscal measures with Congress”.
“However, we prefer to remain short BRL at the current juncture as we see high likelihood of BCB phasing out of the daily FX hedge supply next month (albeit accompanied by the roll of 100% of the maturing contracts)”.
“In terms of valuation, the USD/BRL level is currently in line with the updated level our model suggests as fair for the real exchange rate to be in equilibrium (3.23, compared to 3.17 previously)”.
“Therefore, the BRL selloff that has taken place YTD (-19% against the US dollar) could be considered just a convergence toward its fundamental valuation as BCB eased FX intervention”.
“That said, idiosyncratic drivers clearly point to a weaker real exchange rate going forward, even undershooting long-term valuations on the back of risk premium”.