COPOM policy minutes important for BRL

In Brazil, high risk premia should continue to weigh on Brazilian assets amid elevated uncertainty regarding the sustainability of fiscal accounts in Brazil. Last week's S&P rating downgrade should serve as a wake-up call to Congress, as the threat of losing the investment-grade rating is now closer than ever. With presidential popularity below 10%, it looks unlikely that collaboration with the congress will improve, and as such, further stress on the political front is anticipated before things get better. It will be interesting to see how the economy continues to evolve. 

This week, on the economic growth front, we will get Industrial production on Tuesday, for which a contraction of 1.0% m/m is expected. More important will be COPOM minutes on Thursday and July inflation (IPCA) on Friday. A monthly print of 0.58% m/m sa is anticipated on the latter. Both events will help markets shape expectations about how long the BCB will keep the Selic rate steady. 

"We anticipate that the BCB will cut rates around the first quarter of 2016, but our call is highly dependent on the timing of inflation expectations convergence. For this week, our bias would be to be long BRL versus the USD but short versus MXN and other EM currencies," notes Barclays.