Currency Forecast - BRL: Election Risks Will Drive Depreciation - MAY 2018


BMI View: The Brazilian real will likely trade sideways over the short term, as support from commodity price strength will be offset by pressure from a narrowing real interest rate differential with the US. Over the long term, spot depreciation is likely as sentiment will soften and Brazil's terms of trade weaken.

Short Term Outlook (three-to-six months)

We remain neutral on the Brazilian real (BRL) over the short term. Over the last two months, the unit has largely traded sideways, in line with our view ( see 'BRL: Neutral Near-Term, Weakening Long-Term', January 5). We believe this reflects broad parity between support from commodity price strength and pressure from a narrowing real interest rate differential with the US.

Likely To Trade Sideways In Short Term
Brazil - Exchange Rate, BRL/USD (Monthly)
Note: Dotted line represents BMI projection. Source: Bloomberg, BMI

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