Reality check for Brazilian authorities

Yesterday USD-BRL moved towards 3.68, the highest level in over a decade amid concerns that Brazil's credit making may be cut to junk status in the near future. The catalyst for the losses was that the government are said to have abandoned a proposed financial transaction tax which would have raised extra revenues needed to plug the budget deficit. Instead it now looks certain that Brazil will enter 2016 with a large twin deficit (budget and current account deficit), said Commerzbank in a research note on Tuesday. 

It's becoming increasingly hard to see how investors will continue to finance such deficits in the absence of credible plans on the part of the authorities to bring these deficits under control. If any country is increasingly at risk of a sudden stop in financing, it is surely Brazil. The bottom line for investors is that they have to expect further BRL weakness, adds Commerzbank. This situation will get worse before it gets better.