USD/BRL Outlook: Likely to decrease as the rate is below its recent average and near recent lows, impacted by inflation concerns in Brazil.
Key drivers:
• Rate gap: The Federal Reserve is expected to reduce interest rates, while Brazil's Central Bank maintains its rate at a high level to control inflation.
• Risk/commodities: Rising oil prices may support the Brazilian economy, putting upward pressure on the BRL and potentially weakening the USD/BRL rate.
• One macro factor: Persistent inflation in Brazil is leading the Central Bank to consider tightening monetary policy, which could strengthen the BRL.
Range: The USD/BRL rate is likely to drift lower within its recent range as economic conditions evolve.
What could change it:
• Upside risk: A surprising increase in US inflation could lead to a halt in Fed easing, boosting the USD.
• Downside risk: Further deterioration in Brazil’s economic outlook could increase pressure on the BRL, leading to a weaker exchange rate.
