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22 May 2015
Brazil cold hike further, USD/BRL likely bottomed – Scotiabank
FXStreet (Edinburgh) - Eduardo Suarez, Chief FX Strategist at Scotiabank, gives his view on the BCB stance and the USD/BRL.
Key Quotes
“On the monetary policy front, the BCB continues to send a hawkish message, with Director Volpon stating that the institution cannot afford to let down its guard on the inflation front”.
“Our base case is that the BCB will deliver 2 X 25bps hikes to close the cycle, but we are starting to fear that DI rates may be right, and us wrong, as the continued hawkish tone has continued to be delivered even as DIs price in one more +50bps hike, followed by a final +25bps move (and a partial pricing of an additional +25bps move)”.
“On the FX front, we believe that USD/BRL has likely bottomed, but the problem is that high carry makes USD longs an important position to trade right”.
“Potential catalysts for a move higher are important political dates (i.e. June 1st, although we believe Levy’s plans will be approved in diluted form, as well as the Fed’s lift off)”.
Key Quotes
“On the monetary policy front, the BCB continues to send a hawkish message, with Director Volpon stating that the institution cannot afford to let down its guard on the inflation front”.
“Our base case is that the BCB will deliver 2 X 25bps hikes to close the cycle, but we are starting to fear that DI rates may be right, and us wrong, as the continued hawkish tone has continued to be delivered even as DIs price in one more +50bps hike, followed by a final +25bps move (and a partial pricing of an additional +25bps move)”.
“On the FX front, we believe that USD/BRL has likely bottomed, but the problem is that high carry makes USD longs an important position to trade right”.
“Potential catalysts for a move higher are important political dates (i.e. June 1st, although we believe Levy’s plans will be approved in diluted form, as well as the Fed’s lift off)”.