USD/BRL: Here’s why the Brazilian real just hit its 52-week high

The USD/BRL exchange rate continued falling after the latest Brazilian central bank decision. It has dropped in the past seven straight weeks and is now sitting at the lowest level since June 6th of 2022. In all, the Brazilian real has jumped by more than 13.9% from the lowest level this year.

Brazil central bank decision

One of the top forex news of this week is the interest rate decision by the Brazilian central bank. In it, the bank decided to leave rates unchanged at 13.75%, where it has been since August last year. Before August, the central bank had hiked rates from the pandemic low of 2% in its fight against inflation.

The key change in the bank’s policy was a statement that it will not hesitate to hike interest rates again this year if inflation remains stubbornly high. At the same time, the bank believes that the country’s economy will slow down for the rest of the year. The statement said:

“Notwithstanding the recent reduction of headline consumer inflation, the committee anticipates an increase in the 12-month headline inflation over the second half of the year.”

Therefore, the USD/BRL pair declined because the statement was more hawkish than what most analysts were expecting. Before the meeting, many of them were expecting the bank to signal rate cuts as soon as in August of this year. Still, some analysts believe that the ba will cut by about 50 basis points this year.

Brazil’s economy is facing some headwinds and tailwinds. For example, as I wrote here, soybeans and corn prices have dropped sharply in the past few months. This is important since Brazil is one of the biggest exporters of these agricultural commodities. The main tailwind is that there is still high demand for the country’s products.

USD/BRL technical analysis

USD/BRL chart by TradingView

Turning to the weekly chart, we see that the USD/BRL pair has been in a strong bearish trend in the past few months. It has crossed the important support level at 4.8853, the lowest point in April. Most importantly, the pair has moved below the 25-week and 50-week moving averages.

Therefore, I suspect that the bearish trend will continue as sellers target the next key support level at 4.5926, the lowest level on April 11th. This price is about 4% below the current level.