USD/BRL ignores the hawkish Brazil’s BCB rate decision

The USD/BRL price was relatively unchanged after the Brazilian central bank delivered its fourth interest rate hike as it tries to tame the rising inflation. The pair is trading at 5.1680, which was slightly below this week’s high of 5.2750.

Brazil central bank rate hikes

The Brazilian central bank (BCB) concluded its two-day monetary policy meeting and did what most analysts were expecting. The bank raised interest rates from 4.25% to 5.25%. This was the fourth rate hike this year and was the biggest monthly change the bank has done in almost 20 years. Interest rates started the year at around 2.0%.

The Brazilian economy has seen a sharp increase in consumer prices. Prices have risen by more than 3% this year and analysts expect that the headline consumer price index (CPI) will rise to 3.81% by the end of the year. The central bank has a target of 3.5%. 

The rising inflation in Brazil has been contributed by several factors. First, rising demand for commodities globally has pushed them significantly higher. Second, electricity bills in Brazil have jumped in the past few months. Additionally, the country has seen its worst drought in a century. This drought led to food shortages, which pushed the prices of key commodities higher. 

The BCB has become the most hawkish central bank in the emerging markets. Other banks that have raised rates this year are in Russia, Turkey, Mexico, and Chile.

Looking ahead, the USD/BRL will react to the latest economic numbers from the US. The Bureau of Labour Statistics (BLS) will publish the latest initial jobless claims on Thursday. These numbers will be followed by the latest non-farm payrolls data scheduled for Friday. The pair will also react to the Covid trend in the US.

USD/BRL technical analysis

The daily chart shows that the USD/BRL pair has been in a tight range recently. The price is about 12% below the highest point this year, signalling that the BCB actions are working. The pair is also along the 25-day and 50-day moving averages. It has also formed a small descending channel pattern. Therefore, the pair will likely remain in the current range as investors wait for the latest US jobs data.