USD/BRL: Real rises the day after the dramatic collapse

The real and Brazilian assets are rising on Friday, the day after a dramatic collapse took place. Volatility remains high and is likely to continue elevated but the tone today in markets is completely different from yesterday. 

USD/BRL is falling more than 2% and currently trades at 3.28, after reaching yesterday 3.40. Two days ago, it was trading near 3.10. San Pablo’s Bovespa index is gaining 2.80%. 

The accusation that President Temer authorized bribes triggered a sharp decline of Brazilian assets. 

Cloudy outlook

The political uncertainty has risen sharply and is not clear if Temer will held long in office. Yesterday he said: “I will not resign”. Elections are schedule for late 2018. 

“The outlook for the BRL and Brazilian assets depends on the ability of the President to fend off the allegations over the next few days”, wrote analysts from Danske Bank. 

According to them the opposition parties will certainly maintain pressure on Temer to step down or start an impeachment process against him. 

“Although the market is still long the Brazilian real, it is not at the same stretched positions as a few months ago. However, the latest bout of political uncertainty creates upside risk to our forecast for USD/BRL of 3.30 by end-June”, concluded analysts from Danske.

Brazil: Economy in a turmoil - Nomura