17 Jun 2015
USD/BRL around 3.25 by year-end – JP Morgan
FXStreet (Edinburgh) - Analysts at JP Morgan see the Brazilian real losing ground in the upcoming months.
Key Quotes
“BCB continues to decrease its intervention in the FX market, but it is more difficult for the currency to reach fair levels amid BCB’s hawkishness”.
“The monetary authority again cut the FX swap roll pace, to 75% from 80% previously. If the marginal rollover pace is maintained, the market would be short USD for around $11.3bn in the second half of the year and around $26.1bn through November 2016”.
“In other words, the open interest in FX swaps would decline to $82-83bn, compared to a peak of around $114bn a couple of months ago”.
“In our view, the risk going forward is for further cuts in the roll pace (barring events of material liquidity deterioration), as BCB would jeopardize credibility if they were to announce an acceleration of the roll pace in the future”.
“That said, higher rates for longer should somewhat cap the speed of convergence to fair levels. We are forecasting USD/BRL at 3.25 for December 2015”.
Key Quotes
“BCB continues to decrease its intervention in the FX market, but it is more difficult for the currency to reach fair levels amid BCB’s hawkishness”.
“The monetary authority again cut the FX swap roll pace, to 75% from 80% previously. If the marginal rollover pace is maintained, the market would be short USD for around $11.3bn in the second half of the year and around $26.1bn through November 2016”.
“In other words, the open interest in FX swaps would decline to $82-83bn, compared to a peak of around $114bn a couple of months ago”.
“In our view, the risk going forward is for further cuts in the roll pace (barring events of material liquidity deterioration), as BCB would jeopardize credibility if they were to announce an acceleration of the roll pace in the future”.
“That said, higher rates for longer should somewhat cap the speed of convergence to fair levels. We are forecasting USD/BRL at 3.25 for December 2015”.