BRAZIL: DI Rates Open Lower With USD

(RTTNews) - The one-day interbank deposit futures rates (DI rates) in Brazil opened lower, influenced by the fall in the locally traded U.S. dollar, after a detachment of the foreign exchange and DI tradings in recent days.

Investors digest the decision of the European Central Bank (ECB) to reduce the pace of monetary stimulus as of October, one day after the surprise with the Federal Reserve (Fed), and amidst a series of actions by the Brazilian Central Bank.

A fixed-income trader at a national brokerage house remembers that the futures interest market had a more aggressive reaction to the Fed than the foreign exchange market, with the local central bank's performance smoothing the U.S. dollar appreciation movement.

"Three auctions yesterday prevented a higher U.S. dollar, but without reassuring future interest and the stock market. Today, the forward curve follows the actions of the Central Bank and the Treasury, while the emerging currencies are appreciated against the U.S. dollar," he said.

In addition, investors also digest the monetary policy decision in the eurozone. "The ECB's announcement that it will close asset purchases in December is probably a bit bolder than the markets expected, but this is tempered by the promise to keep interest rates unchanged for more than a year," said the chief economist of European markets at Capital Economics (CE), Jennifer McKeown.

The ECB decision comes one day after the Fed raised the total interest rate hikes expected for this year in the United States from three to four, impacting emerging country assets. Therefore, a market strategist at a national brokerage house evaluates that interventions by the domestic central bank are unable to change the direction (high) of the U.S. dollar.

On the contrary, he evaluates that aggressive behavior in the short term can worsen the local situation in the medium term, considering the uncertainties regarding the elections in Brazil and the more challenging external scenario.

"I keep asking myself, incessantly, what would be the new level of the dollar if the Central Bank was not promoting these interventions? And what happens when that daily dollar ration ends?"

Near the middle of the session, the January 2019 DI contract rate was at 7.20%, from 7.23% in the previous session, while the January 2020 DI rate fell to 8.85%, from 8.88%. The January 2021 DI contract rate was at 9.89%, from 9.94%.