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USD/BRL toward 4.50 on a long term horizon – Rabobank

FXStreet (Córdoba) - According Christian Lawrence, Strategist at Rabobank, the recovery of the Brazilian real (BRL) is likely to be short-lived and a decline of USD/BRL below 4 would provide a “better entry level for reinstating longs”.

Key Quotes:

“Given that BRL woes are far deeper than just market panic and we have little faith that intervention can provide anything other than short term relief, we are of the view that the move below 4 simply provides a better entry level for reinstating longs.”

“We are of the view that USD/BRL below 4 will only prove short-lived and we fully expect USD/BRL to head towards 4.50 on a longer term horizon.”

“The CDI curve implies two 50bp hikes in the SELIC this year and we do not expect that to materialise. BCB Governor Tombini stated that rates are likely to remain on hold numerous times yesterday stating that the “current level of the key rate is necessary to meet (the Bank’s) goal”.”

“Will the Bank dip into reserves to support the currency if we see another sharp leg lower in BRL? They may well do but to our mind this won’t fix the problem beyond short-term relief. Indeed, despite Brazil’s sizeable reserves, there is no country capable of turning a strong deprecation trend into a sustained appreciation.”

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