FX Weekly Overview (Brazil Issue)

FX Weekly Overview: The week's main events
Leonel Oliveira Mattos
Alan Lima
Vitor Andrioli
USDBRL should reflect Copom's minutes, IPCA, fiscal fears, and Chinese data
Bullish factors 
  • Uncertainty about the feasibility of budget targets in 2024 may increase risk premium requirements by investors for Brazilian assets and decrease foreign investments, weakening the BRL.
  • Moderation of IPCA in October may reinforce the perception that the Central Bank will maintain its pace of cuts to the basic interest rate (Selic), which would be detrimental to the national interest rate differential, weakening the 
Bearish factors
  • Minutes of the Monetary Policy Committee (Copom) decision may acknowledge a more challenging foreign environment and higher Brazilian fiscal risks, which could cast doubt on its interest rate cuts trajectory and would benefit the national interest rate differential, strengthening the BRL.
  • Disclosure of data on the Chinese economy can reinforce the perception of a faster recovery in the country, favoring the performance of currencies from commodity-exporting countries, such as Brazil.

The week in review 

The USDBRL ended the week lower, closing Friday's session (03) at BRL 4.897, a weekly decline of 2.3%, a monthly decline of 3.0%, and an annual decline of 7.2%. The dollar index closed Friday's session at 104.9 points, a change of -1.4% for the week, -1.0% for the month, and +1.5% for the year. The foreign exchange market reacted to the monetary policy decisions of the Federal Reserve and the Central Bank of Brazil, the publication of moderate data for the American economy, concerns about Brazilian fiscal targets, and the formation of the end-of-month Ptax rate.

USDBRL and Dollar Index (points) 
image 83427
Source: StoneX cmdtyView. Design: StoneX

Expected impact on USDBRL: bearish

The Monetary Policy Committee (Copom) carried out its third consecutive reduction of 0.50 p.p. for the basic interest rate (Selic), unanimously indicating that it should maintain the pace of cuts "in the next meetings" if the expected scenario is confirmed. However, the statement brought some gaps regarding recent statements by authorities from the Central Bank of Brazil, and the meeting minutes may provide a more detailed analysis of these points. Firstly, recent concerns about the Brazilian government's fiscal policy conduct did not enter the monetary authority's assessment of inflationary risks, receiving only a note on its importance for anchoring inflation expectations. However, fiscal concerns have had a significant impact on market participants' future expectations regarding interest rates, exchange rates, and inflation, warranting a more careful assessment. Additionally, the statement states that "the current situation, particularly due to the international scenario, is more uncertain than usual and requires caution in conducting monetary policy." However, the risk balance continues to be presented as balanced, in an apparent contradiction.


Doubts about fiscal targets

Expected impact on USDBRL: bullish

Discussions about the management of fiscal policy under Luiz Inácio Lula da Silva's government should continue this week. After what seemed to be a careless statement by the President of Brazil in a press conference that the federal government would "hardly" meet the target proposed by the new fiscal framework for 2024, namely, a zero primary result, last week, an economic team was observed unable to reaffirm the maintenance of the target and several reports from specialized media stating that the Planalto was seeking the best way to make the change. So, it seems that on this Tuesday (07), the text of the rapporteur of the Budget Guidelines Law (LDO) project, Congressman Danilo Forte (União-CE), should be presented to the Joint Budget Committee (CMO) of the Chamber of Deputies still with the original goal. However, at some point before the final report vote, scheduled for the week between November 13 and 17, an amendment is expected to suggest changing the 2024 primary deficit target from 0% of Gross Domestic Product (GDP) to probably 0.5% of GDP. If this movement is confirmed, the requirement for risk premiums by investors is expected to increase, harming the performance of Brazilian assets.


IPCA Moderation in October

Expected impact on USDBRL: bullish

After a controlled IPCA-15 in October, with an increase of only 0.21%, the National Broad Consumer Price Index (IPCA) for the complete month is also expected to show moderate growth, around 0.3%. The prices of food, industrial goods, and gasoline are expected to decrease compared to September, while airfare and service prices are expected to increase during this period.

12-month IPCA (%) according to selected groups
image 83428
Source: Central Bank of Brazil. Design: StoneX.
Chinese economy data 

Expected impact on USDBRL: bearish

This week, the Consumer Price Index (CPI) and Producer Price Index (PPI) for October in China will be released, as well as the trade balance data for the same month. International investors are moderately more optimistic about the country's economic recovery after releasing some recent indicators that were better than anticipated, such as the Gross Domestic Product for the third quarter, the industrial production for September, and the retail sales for the same month. If the most favorable forecasts are confirmed, it should boost the performance of risky assets, such as stocks, commodities, and currencies of countries that export primary products, like Brazil.


image 71977

image 83429
Sources: Central Bank of Brazil; B3; IBGE; Fipe; FGV; MDIC; IPEA and StoneX cmdtyView.
Related tags: Currencies

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI . StoneX is a trading name of StoneX Financial Ltd (“SFL”). SFL is registered in England and Wales, Company No. 5616586. SFL is authorized and regulated by the Financial Conduct Authority [FRN 446717] to provide to professional and eligible customers including: arrangement, execution and, where required, clearing derivative transactions in exchange traded futures and options. SFL is also authorised to engage in the arrangement and execution of transactions in certain OTC products, certain securities trading, precious metals trading and payment services to eligible customers. SFL is authorised & regulated by the Financial Conduct Authority under the Payment Services Regulations 2017 for the provision of payment services. SFL is a category 1 ring-dealing member of the London Metal Exchange. In addition SFL also engages in other physically delivered commodities business and other general business activities which are unregulated and not required to be authorised by the Financial Conduct Authority. StoneX Group Inc. acts as agent for SFL in New York with respect to its payments services business. StoneX APAC Pte. Ltd. acts as agent for SFL in Singapore with respect to its payments services business. ‘StoneX’ is the trade name used by StoneX Group Inc. and all its associated entities and subsidiaries.


Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. Past performance of any futures or option is not indicative of future success. Indicators are not a trading system and are not published as a specific trade recommendation. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.


© 2023 StoneX Group Inc. All Rights Reserved.

Discover more insights

Our subscribers have access to comprehensive market analysis from StoneX spanning commodities, equities, currencies and more.
See why StoneX is a partner of choice

Let’s get connected

To learn more about how our customized financial solutions can help you stay one step ahead in the global markets, contact our team today.

Select your Location

Contact us


By submitting this form, you are sending StoneX Group Inc. and its subsidiaries your personal information to be used for marketing purposes. View our  Privacy policy  to learn more.

If you're an existing customer, please direct any inquiries to your StoneX sales team.