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Financial News: BRAZIL: DI Rates Open Higher With Trade War,

BRAZIL: DI Rates Open Higher With Trade War, USD, Before Monetary Decision

06/19/2018 - 12:33:00 (RTTNews)

(RTTNews) - The one-day interbank deposit futures rates (DI rates) in Brazil opened higher Tuesday, tracking the appreciation of the locally traded U.S. dollar against the Brazilian real, in the face of escalating trade tension between the United States and China. The movement in the forward curve is also influenced by the expectation of Wednesday's decision of the Brazilian Central Bank's Monetary Policy Committee (Copom).

The resurgence of trade tensions between the world's two largest economies comes after the Trump government threatens additional tariffs of about US$ 200 billion on Chinese products, in addition to the US$ 50 billion list that goes into effect in July.

"For its part, China has stated for the first time that the United States has started a trade war and that comprehensive measures should be taken," noted the Renascenia Corretora in a report.

The question remains whether China would continue to respond to protectionist attacks by the Trump administration on the trade side alone.

"China has to impose tariffs on everything it purchases from the United States to keep retaliation to the same extent, but China has other tools that it could use, including putting pressure on U.S. companies operating in the country," said analyst Oliver Jones of Capital Economics (CE), also in a report.

The more hostile external scenario combined with local uncertainties challenges the Copom, on the eve of the announcement of the decision on the basic interest rate. The Renascen?a team recalls that the forward curve has not yet fully priced the Selic's "stability call" and notes that the "concretization" of this bet is conditioned by the U.S. dollar's devaluation magnitude in this session.

Near the middle of the session, the January 2019 DI contract rate was at 7.195%, from 7.155% in the previous session, while the January 2020 DI rate fell to 8.90%, from 8.80%. The January 2021 DI contract rate was at 9.90%, from 9.79%.

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