The Brazilian real has gained momentum, trading below 5.5 per USD in late September, approaching a one-month peak of 5.43 achieved on September 19th. This uptrend is driven by hawkish expectations for Brazil’s central bank and a favorable outlook for foreign currency inflows following stimulus measures from China.
Recent minutes from the latest Copom meeting revealed no indications of easing inflation, pointing to a deteriorating inflationary landscape. Medium-term projections for inflation have risen, accompanied by increasing risks of price pressures. As a result, market participants are largely anticipating a 50 basis point increase in Brazil’s Selic rate in November, reflecting ongoing efforts to remain committed to inflation targets amidst a tightening cycle.
Moreover, the People's Bank of China (PBoC) has announced aggressive monetary stimulus, which is expected to bolster the demand for key Brazilian exports from its largest trading partner, particularly iron ore and soybeans. This development is likely to enhance the outlook for foreign exchange inflows.
In trading updates, the USDBRL fell by 0.0456 or 0.83% to 5.4293 on Thursday, September 26, down from 5.4749 in the previous session. Analysts project that the Brazilian real will be trading at 5.65 by the end of this quarter, with expectations it will expand to 5.75 within the next twelve months.