Politics to dominate Brazil price action

Volatility caused by political turmoil likely to continue to dominate price action in Brazilian assets. Due to so much uncertainty around the political outcome in Brazil, BRL should keep its downward trend, in an environment where the global economic outlook looks weak and commodity prices continue decreasing, says Barclays. 

Despite last week's Moody's decision about changing Brazil's credit outlook to stable, analysts assume, it is just a matter of time until the agency acknowledges the risks of losing IG, as assumptions look somewhat optimistic in the current environment. 

According to Barclays, "We foresee further weakness in BRL and, as such, there are risks to our forecasts for the months ahead. In the rates space, we continue favoring steepeners as monetary policy remains very tight and term premia seem to be inconsistent with CDS pricing."

Unemployment rate for July and IPCA-15 inflation for August are the main economic releases for Brazil during the week ahead. Barclays expects the seasonally adjusted unemployment rate to increase to 6.7% and inflation rate by 0.45m/m.