Top Forecaster of Brazil Real Says Brexit Will Benefit Currency

  • MPS strategist Antonio Cesarano sees strong post-Brexit gains
  • Cesarano’s team had most accurate real forecasts, data shows

Brazil’s real, already the region’s best-performing currency, is set to benefit from increased demand for emerging-market assets following the U.K.’s vote to leave the European Union, the most successful forecaster says.

After the so-called Brexit vote, “we expect emerging markets to win favor, and this would allow the real to continue appreciating," said Antonio Cesarano, head of market strategy at MPS Capital Services in Siena, Italy. "Brazil also has this potential breath of fresh air due to the change in leadership after the impeachment.”

The real was the best-performing currency in the world in the first half of the year, as a new government boosted confidence that Latin America’s biggest economy will be able to recover from its worst recession in a century. Cesarano and his team expect the real to weaken temporarily in the third quarter as investors cash in on the recent strong appreciation, he said.

The group, which had the most accurate forecasts for Brazil’s currency in the first two quarters of this year, according to data compiled by Bloomberg, revised their third-quarter estimate to 3.5 per dollar from 3.7 after the Brexit vote. 

The real has gained 0.2 percent since the June 23 referendum, compared with an average 1.3 percent decline for emerging-market currencies. Uncertainty arising from Brexit and elections in the euro zone countries could keep the U.S. Federal Reserve more dovish, which would support the real in the first half of next year, Cesarano said.

Brazil’s economy has relatively little exposure to trade with the U.K. and Europe. The U.K. was Brazil’s 10th-biggest trading partner as of the end of February, with $542.3 million in total trade that month, data compiled by Bloomberg show. China, the U.S. and Argentina are the country’s top three trading partners.

The real dropped in the past four sessions as Brazil’s central bank auctioned reverse currency swaps, the equivalent of buying dollars in the local market. The auctions have the effect of weakening the real.

MPS Capital Services is the investment banking unit of Italy’s Banca Monte dei Paschi di Siena SpA, the world’s oldest bank.

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