28 Apr 2015
Brazilian real points southwards medium term – JP Morgan
FXStreet (Edinburgh) - In the opinion of analysts at JP Morgan, the Brazilian currency could weaken vs. the greenback in the medium term.
Key Quotes
“The rally may have further legs in the short term amid a more hawkish BCB, compressing credit premia, and a rangebound USD”.
“BCB’s hawkish tone increased in recent days, in a clear attempt to make 2016’s expected inflation converge to 4.5%”.
“With credit premium likely to continue its compression after Petrobras published the audited financials, the hawkish tone of BCB may give the BRL rally more room than we previously anticipated”.
“Nevertheless, we think it is unlikely to see USD/BRL below 2.90, even assuming a rangebound USD. Indeed, our short-term valuation model screens 2.92 as the fair USD/BRL to coincidental risk indicators when the model is estimated for the last 700 trading days (3.02 is the fitted level if the same model is estimated for the last 90 trading days)”.
“In the medium term, we believe the currency will weaken, as our longer-term estimates for the currency suggest 3.21 as a fair level to low-frequency macro variables (terms of trade, current account deficit, ratio of non-tradable to tradable inflation, central government debt, among other variables)”.
Key Quotes
“The rally may have further legs in the short term amid a more hawkish BCB, compressing credit premia, and a rangebound USD”.
“BCB’s hawkish tone increased in recent days, in a clear attempt to make 2016’s expected inflation converge to 4.5%”.
“With credit premium likely to continue its compression after Petrobras published the audited financials, the hawkish tone of BCB may give the BRL rally more room than we previously anticipated”.
“Nevertheless, we think it is unlikely to see USD/BRL below 2.90, even assuming a rangebound USD. Indeed, our short-term valuation model screens 2.92 as the fair USD/BRL to coincidental risk indicators when the model is estimated for the last 700 trading days (3.02 is the fitted level if the same model is estimated for the last 90 trading days)”.
“In the medium term, we believe the currency will weaken, as our longer-term estimates for the currency suggest 3.21 as a fair level to low-frequency macro variables (terms of trade, current account deficit, ratio of non-tradable to tradable inflation, central government debt, among other variables)”.