Hawkish tone in COPOM minutes supports BRL rally

The Brazilian real appreciated almost 1% vs. the USD to USD-BRL 3.09 on Thursday. Expectations of the central bank keeping a hawkish stance as shown in the latest COPOM minutes fueled yesterday's BRL rally. This document still signals a hawkish attitude by the central bank not only in the quarters to come but also potentially in the magnitude of the total budget for the ongoing tightening cycle. 

An additional 25 bps rate hike is expected by the end of July to 14%, but given the tone of yesterday's minutes, the risk now seems to be skewed towards more rate hikes, forecasts Commerzbank. 

At this juncture, inflation releases and the upcoming inflation report will be monitored closely in order to fine-tune the expectations in the weeks to come, adds Commerzbank. That said, the carry currently embedded in long BRL positions (and the expected one) still creates appreciation pressures on the BRL in the short-term in the absence of negative events (global and/or domestic) or a significant deviation from the ongoing fiscal austerity efforts.