MUFG Bank analysts say the Brazilian real is motivated by several factors, but domestic problems remain a source of concern. They anticipate a gradual recovery of the real against the dollar in the coming quarters, but they warn that the scenario is under continuous evaluation.
Key quotes:
“Brazil improved its performance in May compared to its peers, under the effect of three factors: i) heavy intervention by the Central Bank when the USD / BRL approached 6.0000, followed by the declaration of his governor on his preparation to reduce volatility and avoid BRL detaching from his peers; ii) positive mood abroad with the reopening of the economy in several countries and iii) reduction of political noise after a video of a cabinet meeting showed no compromise for President Bolsonaro who could have trigger an indictment request. “
“The USD / BRL remains strongly undervalued as it is the worst EM currency so far this year. Thus, it is possible to continue to increase if such a positive scenario continues. However, we do not see the recovery of BRL much further since we see many limits to this appreciation trend with many potential sources of concern. “
“Our appeal to 45,000 people by the end of 2020 is in line with a positive environment with the world emerging from the health crisis. But, given several domestic issues, the USD / BRL may well end up weaker than our forecast of 4.5000. Our scenario is subject to continuous evaluation. “