Currency Forecast - BRL: Strength Has Run Its Course - DEC 2017

BMI View : The Brazilian real will likely trade sideways over the coming months and depreciate over the coming year. A weakening real yield differential with the US and the potential for bearish sentiment ahead of the 2018 general election will drive downside pressure on the unit although total return outperformance versus the US dollar is likely to continue .

Short-Term Outlook (three-to-six months)

We are neutral on the Brazilian real over the short term. In line with our view, the unit has strengthened over recent months as bearish sentiment has reversed and commodity prices have continued to rally ( see 'BRL: Short-Term Strength Will Fade In 2018', July 6). Indeed, the unit has outperformed our expectations. As a result, we have upgraded our forecast average for 2017 to BRL3.18/USD, from BRL3.25/USD previously.

Rally Likely Played Out
Brazil - Exchange Rate, BRL/USD
Source: Bloomberg, BMI

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