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20 Jun 2013
Flash: The battle in Turkey and Brazil continues on the streets and in FX markets - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman analysts note that the battles in Turkey and Brazil are continuing on the streets and in the FX markets.
They begin by noting that they are sticking to their view that Turkish authorities will be able to hold the weakening currency trend better than others in the EM space. They see that the policy meeting two days ago had an explicit reference to FX. Yesterday, they add that the bank cancelled its 1-week repo auction again to tighten liquidity. They feel that despite the political upheaval, TRY is one of the best performing currencies in the EM space this month.
Moving to Brazil, they writes, “Stubbornly perhaps, we still think the authorities will be able to keep the move in BRL under control for the time being. With the political situation as tense as it is now,” They feel that it would be too much to have to admit defeat on the currency front. Still, they note that the BCB and FM Mantega look to be losing the battle on BRL, with spot closing at 2.1815 yesterday despite heavy handed intervention. They write, “We don’t think it’s yet the time for the big USD/BRL move higher – if it comes, it will be after the elections. The central bank hasn't intervened in spot FX yet, which would be the next step of escalation. That they haven't done so yet suggests concern but not yet alarm on FX developments. They have the firepower and the political urgency; it’s now time to see if they have the resolve.”
They begin by noting that they are sticking to their view that Turkish authorities will be able to hold the weakening currency trend better than others in the EM space. They see that the policy meeting two days ago had an explicit reference to FX. Yesterday, they add that the bank cancelled its 1-week repo auction again to tighten liquidity. They feel that despite the political upheaval, TRY is one of the best performing currencies in the EM space this month.
Moving to Brazil, they writes, “Stubbornly perhaps, we still think the authorities will be able to keep the move in BRL under control for the time being. With the political situation as tense as it is now,” They feel that it would be too much to have to admit defeat on the currency front. Still, they note that the BCB and FM Mantega look to be losing the battle on BRL, with spot closing at 2.1815 yesterday despite heavy handed intervention. They write, “We don’t think it’s yet the time for the big USD/BRL move higher – if it comes, it will be after the elections. The central bank hasn't intervened in spot FX yet, which would be the next step of escalation. That they haven't done so yet suggests concern but not yet alarm on FX developments. They have the firepower and the political urgency; it’s now time to see if they have the resolve.”