Brazil: Last pieces of January activity data - Rabobank

The BRL ended the week (Mar 5 - 9) virtually unchanged at 3.25/USD, lagging the average performance of peer-currencies (weekly gain of 0.2-0.4%), points out the research team at Rabobank.

Key Quotes

“The sluggish performance in FX contrasts with a rally in fixed income. In external markets, the 5-year sovereign CDS moved back below 150bps. In local rates, the belly of DI yield curve rallied again on increased bets on more rate cuts in short run, and slower policy normalization in medium run. Key tenors of the segment (Jan-19, -20, -21) fell 10-20bps for the week.”

“On the macro front, recent reports gave further support for expectations of another rate cut in the March 21 policy meeting. Those were also boosted by remarks of BCB officials admitting that recent CPI numbers have surprised the authority on the downside.”

“On one hand, January industrial production underscored a gradual recovery. On other hand, February IPCA highlighted a declining trend in underlying inflation, increasing the downside risks for (market expectations of) both inflation and Selic rate in 2019.”

“This week’s calendar features the last pieces of January activity data, such as retail sales (Tue) and service sector volume (Fri).”