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Financial News: BRAZIL: DI Rates End Higher With USD Rise,

BRAZIL: DI Rates End Higher With USD Rise, Currency Swap Auctions

06/14/2018 - 20:28:00 (RTTNews)

(RTTNews) - The one-day interbank deposit futures rates (DI rates) in Brazil ended higher, amid the soaring U.S. dollar even after strong interventions by the central bank with foreign exchange swap auctions, whose extra batch of US$ 20 billion ends Friday. The forward curve is still under pressure from domestic risks in fiscal, policy and inflation.

Operators say that the domestic market has become more aggressive as the end of the additional bundle of foreign exchange swap approaches, and amid the more challenging foreign scenario following the shift in U.S. Fed and the European Central Bank positions.

"There is a global bullish movement of the U.S. dollar and the Brazilian Central Bank offered the swap to provide liquidity, but the exterior has nullified all the work," said a fixed income trader.

The fears of the domestic market with the state of public accounts and electoral uncertainties combined with the more challenging external scenario and the impact of the U.S. dollar on inflation give rise to the possibility of an imminent hike in the Brazilian Selic rate.

"The Central Bank has few instruments to contain this pressure and will not have much output except to raise interest soon," added a derivative manager.

Professional calculations indicate that the forward curve is closing Thursday's session, pricing almost 70% of a 0.25 percentage point (pp) tightening chance in the Selic at the meeting of the Monetary Policy Committee (Copom) scheduled for the next week. The remainder indicates the possibility of a larger increase of 0.50pp. For now, the forward curve has zeroed the chance of keeping the basic rate at 6.50% this month.

The January 2019 DI contract rate was at 7.60%, from 7.23% at the previous session, while the January 2020 DI rate ended at 9.37%, from 8.88% on the same comparison. The January 2021 DI contract rate was at 10.35%, from 9.94%.

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