USD/BRL slides after the hawkish Brazil Central Bank decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at He lives in Nairobi with his wife, son,… read more.
on May 6, 2021
  • The USD/BRL declined after the latest Brazilian Central Bank rate decision.
  • The central bank raised interest rates and hinted that it will hike more later.
  • The country is facing high unemployment rate and inflation.

The USD/BRL price declined during the Asian session after the Brazilian central bank delivered its interest rate decision. It dropped to 5.3542, which is 9% below the March 9 high. 

USD/BRL price action

Brazil Central Bank decision

Brazil has been one of the most affected countries by the coronavirus pandemic. The country has reported more than 14.9 million cases and more than 412k deaths. This makes it the third-most affected country after the United States and India.

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The country’s inflation and the unemployment rate have surged. Recent numbers showed that the headline inflation rose by 6.1% in March. The Producer Price Index (PPI) rose by 33.5% while the unemployment rate rose to 14.4%. The inflation growth is mostly because of higher crude oil prices and the ongoing disruptions in the shipping industry.

It is against this backdrop that the Brazilian Central Bank delivered its May interest rate decision. As widely expected, the bank lifted interest rates from 2.75% to 3.50%. It also signaled that it will likely have another sharp rate hike to 4.25%. This was the second time that the bank has raised interest rates this year. In a statement, the bank said:

“A partial normalization of the policy rate remains appropriate to keep some degree of monetary stimulus during the economic recovery. There is no commitment with this plan, and that future steps of monetary policy could be adjusted to assure the achievement of the inflation target.”

Looking ahead, the USD/BRL will react to the upcoming US jobs numbers. On Wednesday, data by ADP showed that the private sector created more than 700k jobs in April. On Thursday, the Labour Department will publish the latest initial jobless claims numbers followed by the non-farm payroll data (NFP) on Friday.

USD/BRL technical forecast

USD/BRL technical chart

The daily chart shows that the USD/BRL pair has been in a downward trend recently. This trend is evidenced by the declining black trendline. At the same time, the 25-day and 50-day moving averages (EMA) have made a bearish crossover pattern. It has also dropped below the symmetrical triangle pattern. 

Therefore, there is a possibility that the USD/BRL pair will keep falling after the hawkish Brazilian Central Bank decision. Still, the pair is thinly traded, which means that you should use be careful when trading it. Also, you should use a demo account and risk management tools offered by your forex broker when trading it.

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