We maintain our call to go long the BRL on any weakness. The easing risk premium, still-high carry and low volatility, coupled with small external imbalances and efforts to reduce fiscal risks, should support the currency. The undemanding valuations, light positioning, and high terms of trade should also help. Finally, once the dust settles in the external environment, the end of the Fed’s tightening cycle, lukewarm global growth, and easing global financial conditions as the year progresses should all add to the positive picture. 

We see USD/BRL trading in a 4.70-5.00 range in the month ahead. 

We still expect the swap curve (DI33-25) to bull steepen as the central bank is likely to continue cutting rates, by perhaps 50 bps in each of the next three meetings – moving towards 11.75% by year-end. The long end is set to benefit from the smaller risk premium but should show more of a range bound pattern.