Brazilian Central Bank’s upcoming intervention decision to determine real's strength

The Brazilian real is the best performing emerging market currency year to date against the US dollar. It might have appreciated more if the Central Bank of Brazil had not intervened. Stimulated by growing sentiment that the present interim government can reverse the Brazilian economy’s ails, the USD/BRL pair recently rallied to a year-to-date low of 3.15 against year-to-date high of 4.17 in January, said Lloyds Bank in a research report.

But there is possibility that markets might be premature in their assessment as approval of congress is required to address the current fiscal issues. This is not expected until impeachment proceedings against suspended Dilma Rousseff are completed at the end of August, one week after the Olympics in Rio de Janeiro concludes.

If it is passed, intervention attempts to stem further strengthening of the currency are expected to deepen as the Central Bank of Brazil balances the requirement for attractive yields to fight inflation against worries that a firmer exchange rate might weaken an economy that is already in deep recession, stated Lloyds Bank.