Barclays Sees Sharp Rally in Brazil’s Real on Rate Hikes

Bloomberg — Brazil’s real (USDBRL) is likely to soar in the next two months as rising interest rates and high commodity prices help restore investor faith in a currency that has tumbled since mid-April, according to Barclays.

Strategist Juan Prada sees the real reaching 4.55 to the dollar by the end of June, a jump of about 10% from its current trading level. The currency pared some losses on Tuesday after falling 2.3% the previous day, and dropping 4.9% in April.

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One simple reason for the likely rebound is borrowing costs. Brazil’s central bank is expected to increase its key rate by 100 basis points to 12.75% on Wednesday. But that won’t be the end of the hiking cycle, according to Barclays, with Prada and economist Roberto Secemski writing in a note Monday that borrowing costs will peak at 13.25% in the months ahead.

“The recent sell-off offers opportunities in commodity currencies,” Prada and Secemski wrote in the report. Barclays was among the most accurate forecasters for the real in the first quarter, according to the BCB ranking.