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In an environment where economic activity continues collapsing and the political commitment to push the necessary structural reforms is nonexistent at this point,this trend is not over.
"Although the BRL has underperformed its peers during the past weeks, further weakness is seen ahead during the next few quarters. Some correction might be possible in the next weeks as technical factors are close to oversold and positioning looks somewhat extreme", says Barclays.
Furthermore, a delay of meaningful changes in the administration poses non-linear risks to Brazilian assets, as such, some upside risks are seen (an acceleration in the price action) if things really get out of control.
"Moreover, low hedging ratios because of the high cost of carry should support this view for USD/BRL. On the former, the BCB is expected to confirm its commitment to keep the SELIC rate unchanged for some time, something that should dampen expectations for further tightening in the meetings to come. For the latter, an increase of 0.25% m/m is expected in the IPCA for August, little below market expectations of an increase of 0.31%", added Barclays.
