Economists at Credit Suisse remain moderately bearish BRL, sticking to a 5.15-5.50 USD/BRL target range. They also highlight potential for near-term volatility around still unresolved budget issues.

Sudden unexpected resolution in the precatórios issue to have BRL-positive implications

“Our bias remains for USD/BRL to trade higher towards the upper end of our 5.15-5.50 target range, but we acknowledge that trading the view is likely to prove challenging.”

“We remain alert to the possibility that some form of agreement between the CNJ and the government on the precatórios might transpire, which would be a net near-term positive. We still however remain of the view that a more substantial improvement on the reform front is needed for some of the risk premium metrics  to ease in a more lasting way.”

“We suspect that evidence of a healthier dynamic on the inflation front will be needed for markets to feel comfortable about pricing out some of the more averse scenarios implied by said risk premia. In absence of a credible path towards these improvements, our bias will remain for USD/BRL to gravitate higher towards the mid-Aug highs right below 5.50 in the coming weeks, and we would look to fade dips below 5.15.”