BRAZIL: DI Rates Rise Tracking US Dollar And Higher 10-year T-note Yield

(RTTNews) - The one-day interbank deposit futures rates (DI rates) in Brazil started the day on a firm footing, tracking the U.S. dollar increase in local markets and higher interest rates for the United States 10-year bond.

The January 2019 DI contract rate was rising 6.395%, from 6.360% on Friday, while the January 2020 DI rate had an increase to 7.50%, from 7.41%. The January 2021 DI contract rate was at 8.60%, from 8.48%. The locally traded U.S. dollar was up 1.32%, at R$ 3.6760.

Luis Felipe Laudisio, an operator at Renascen?a Corretora, investors are "questioning and testing" the Brazilian central bank and searching for the foreign exchange rate level that would attract a more firm response from the monetary authority.

The market strategist at Icatu Vanguarda, Dan Kawa, said that investors are also questioning the next steps of the Brazilian monetary policy.

"Maybe the market is signaling to the Central Bank that it would be more prudent to end the easing cycle with the Selic rate at 6.5%, not with a further 25 basis-point cut," he added. Nevertheless, markets are still pricing a 65% chance of a 25 basis-point decrease tomorrow, when the Brazilian central bank is set to announce its monetary policy decision.

Infinity Asset's chief economist, Jason Vieira, said that investors are uncertain about Wednesday's decision because of short-term uncertainties.

"This 'test' to the monetary policy committee is partly due to tensions to the scenario, fueled by political and geopolitical issues, international pressure coming from on oil prices and from the United States 10-year bond yield beyond 3%," he added.