Brazil Intervenes To Prop Up Real But Is It Enough?

BRL: Testing the BCB’s tolerance limits

USD/BRL traded up to a new all-time high yesterday, driven in part by some rebalancing of MSCI equity indices away from Brazil as part of a semi-annual review. The sharp spike in USD/BRL prompted a more aggressive response from Brazil's central bank (BCB) – which conducted a spot auction to sell USD, without the corresponding USD purchases via the FX swaps. Such style of intervention is rare. It may well have been a response to the speed of the Brazilian real's decline, but if BCB does have a problem with the absolute USD/BRL level, i.e. above 4.25, then look out for another USD spot auction today. We like the BRL, but greater interest from the BCB in supporting the currency would be encouraging.

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