We continue to see the USD/BRL pair trading at 5.45 by end-2020 and at 5.10 by end of next year. They forecast the Brazilian GDP will drop by 7.3% in 2020 and pickup 4.5% in 2021.

Key Quotes: 

“We continue to see the USD/BRL trading at 5.45 by end-2020 and 5.10 by end-2021.”

“Volatility seen in June is likely poised to remain until year-end. Externally, because of underlying US-China tensions, US elections, and a second Covid-19 wave. Domestically, the drivers are the uncertainties created by Covid-19, and their consequent fiscal costs.”

“In 2020, with falling demand and a more depreciated currency, imports will plummet (USD 148.1bn in 2020), exports will drop relatively less (USD 192.4bn), FDI will almost halve (at USD 43.5bn), and the current account deficit (CAD) should narrow to -0.9% of GDP in 2020. In 2021, with improving exports (USD 209.6bn), imports (USD 166.1bn), and FDI (USD 58.7bn), CAD would be -2.2% of GDP.”

“We still see the Selic rate at 2.25% by the end of the year and at 3.25% by end-2021.”