USD/BRL likely to trade towards 3.25 by end-2016

So far in 2016, the Brazilian real has rallied 20 percent against the US dollar. This is predominantly due to muted Fed interest rate outlook and also because markets are betting that the new government is expected to execute austerity cuts, said Commerzbank in a research note.

But, if the Central Bank of Brazil undertakes a rate cutting cycle, it would reduce the Brazilian real’s appeal in the medium term. Meanwhile, still weak fundamentals argue that the Brazilian central bank would not want excessive appreciation of the real.

“We think USD/BRL can trade towards 3.25 by year end 2016”, added Commerzbank.