Buy dip in USD-BRL

For the fourth day in a row BRL appreciated yesterday, despite the publication of worse than expected inflation data for September, which printed at 9.31% yoy. When it comes to CPI data what matters is the reaction function of the central bank. 

Given that BCB on face value want to keep selic rates at 14.25%, then there is no reason for BRL to appreciate, especially given that the underlying trend is for higher CPI levels over the coming months. Rather, the moves are merely a reflection of a broadly weaker USD and slightly improved risk sentiment. 

"We doubt these gains are either justified or sustainable. The economic and political situation in Brazil remains extremely poor and consequently we are of the view that buying dips in USD-BRL should prove to be a good trade", says Commerzbank.