USD/BRL will struggle to sustain a move below 5.00 – ING

USD/BRL is pressing 5.00 and the Real has been one of the better EM FX performers over the last month. However, economists at ING expect the pair to stay above the 5.00 level.

New fiscal framework delivers a brief lift

“Helping the Real has been the positive reception of the new fiscal framework announced at the end of March. Having done its part, the government will now be leaning on the central bank to cut rates. So far, the central bank is still sounding hawkish given that inflation expectations are heading in the wrong direction.”

“BRL is enjoying a short honeymoon, but renewed pressure on the central bank or poor fiscal developments can easily end the rally.”

“We favour USD/BRL returning to the middle of a 5.00-5.50 range.”