Economists at Credit Suisse revise their USD/BRL target higher from 5.65 to 5.80, following the recent deterioration in the domestic fiscal outlook. In absence of a meaningful shift on the fiscal front, however, they think that dips in the 5.40-5.50 area will quickly find buyers. 

Dips to 5.40-5.50 will find buyers

“We remain bearish on BRL and revise our target higher from 5.65 to 5.80.”

In absence of a turn in the domestic political climate, in the form of a reversal or of a reduction in the Auxilio Brasil fiscal initiative, we suspect that dips in USD/BRL in the 5.40-5.50 area are likely to find keen buyers.”

“Rallies in USD/BRL north of the Q1 highs around 5.88 are likely to meet resistance in the form of aggressive FX intervention by the BCB.”

“We suspect that an even larger deterioration in domestic conditions, e.g. with further high-level government defections, needs to realize for USD/BRL to test the all-time highs around 5.97.”