BRAZILIAN REAL AND MEXICAN PESO WILL REMAIN WELL SUPPORTED – COMMERZBANK

Esther Reichelt, FX Analyst at Commerzbank, explains why BRL and MXN are holding up well.

Not only doves cut interest rates

With inflation having come down significantly to 3.9% in Brazil and 5.8% in Mexico, rate cuts are justified to avoid excessive tightening through further increases in real interest rates. Hence, rate cuts are not a dovish signal as both central banks have so far left no doubt that they intend to maintain reasonably positive real interest rates for the time being, given the continuing uncertainties about the future path of inflation.

We expect both central banks to reaffirm their fundamentally hawkish stance in this week's rate decisions, and that the Brazilian Real and the Mexican Peso will remain well supported.